Notices. Notice

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BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54552; File No. SR-Amex-2005-104] Self-Regulatory Organizations; American Stock Exchange LLC; Order Approving a Proposed Rule Change and Amendments No. 1, 2, 3, 4, and 5 Thereto, and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 6, To Establish a New Hybrid Trading System Known as AEMI SM September 29, 2006. I. Introduction On October 17, 2005, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change to implement a new hybrid market structure for equities and exchange-traded funds (“ETFs”) known as the “Auction & Electronic Market Integration” (“AEMI”).

Amex amended the proposal on January 19, 2006; 3 March 10, 2006; 4 March 14, 2006; 5 July 3, 2006; 6 and July 13, 2006. 7 The proposed rule change, as amended, was published for comment in the **Federal Register** on July 21, 2006. 8 The Commission received no comments on the proposal. On September 29, 2006, Amex filed Amendment No. 6 to the proposal. 9 This order approves the proposed rule change, as amended by Amendments No. 1, 2, 3, 4, and 5, grants accelerated approval to Amendment No. 6, and solicits comments from interested persons on Amendment No. 6. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Form 19b-4 dated January 19, 2006, which replaced the original filing in its entirety (“Amendment No. 1”). 4 *See* Form 19b-4 dated March 10, 2006, which replaced Amendment No. 1 in its entirety (“Amendment No. 2”). 5 *See* Form 19b-4 dated March 14, 2006, which replaced Amendment No. 2 in its entirety (“Amendment No. 3”). 6 *See* Form 19b-4 dated July 3, 2006, which replaced Amendment No. 3 in its entirety (“Amendment No. 4”).

Amendment No. 4, among other things:

(1)Removed the Passive Price Improvement order type from the proposal;

(2)stated the Exchange's commitment to make AEMI's depth-of-book information broadly available;

(3)added additional size and value requirements for certain cross orders;

(4)distinguished two quote indicators that may be disseminated in connection with the Exchange's publishing of non-firm quotes;

(5)revised the procedures regarding the receipt of a partial fill or no response to an outgoing intermarket sweep order; and

(6)made various other minor corrections and clarifications to the proposed rule change. 7 *See* Partial Amendment to Form 19b-4 dated July 13, 2006. (“Amendment No. 5”). In Amendment No. 5, the Exchange, among other things:

(1)Set forth a timeframe for the availability of depth-of-book data;

(2)clarified when Specialists may charge commissions;

(3)clarified when the Exchange will send intermarket sweep orders to other markets; and

(4)acknowledged that the Exchange's rules would not obviate or invalidate any trade made pursuant to another market's rules. 8 *See* Securities Exchange Act Release No. 54145 (July 14, 2006), 71 FR 41654 (“Notice”). 9 *See* Partial Amendment to Form 19b-4 dated September 29, 2006 (“Amendment 6”). *See infra* Section III. II. Description of Proposal Utilizing AEMI, Amex proposes to implement a new hybrid market structure to integrate automated and floor-based trading for equities and ETFs. The Exchange has designed AEMI to enable it to comply with Regulation NMS, 10 particularly Rules 610 (the Access Rule) and 611 (the Order Protection Rule), 11 and to operate as an automated trading center 12 whose quotes would be protected by Rule 611. Although AEMI includes many new features, many of Amex's existing floor-based rules are being incorporated into the new AEMI rules. 10 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37495 (June 29, 2005) (“Regulation NMS Release”). 11 17 CFR 242.610 and 242.611. 12 *See* 17 CFR 242.600(b)(3) (defining “automated trading center”). A. General Overview of AEMI Central to the AEMI system is the electronic order book where marketable trading interest will automatically execute. AEMI by default will publish an automated best bid and offer for the Exchange (also referred to as the “Amex Published Quote” or “APQ”), and the default state of operation will be automatic execution (“auto-ex”). Generally, if an incoming order is marketable, it would automatically execute against any contra-side interest on the AEMI Book until its limit price, if any, is reached. Any remainder would be displayed on the AEMI Book as part of the new APQ. Market participants also can use the “hit or take” functionality to trade immediately against the APQ. Notwithstanding the foregoing, if an incoming order locks or crosses a protected quotation of another trading center and that protected quotation is better priced than the APQ, AEMI would send an intermarket sweep order (“ISO”) for the displayed quantity of the protected quotation. Any remaining size could execute on the AEMI system or be displayed in the AEMI Book, as appropriate. Executions would occur according to the Exchange's rules of parity and priority, discussed in more detail below. Amex will retain a physical trading floor, although verbal bids and offers have no standing until entered into the AEMI system. 13 A trade negotiated on the floor, when entered into the system, can be broken up by electronic orders at the same price on the AEMI Book or by better-priced protected quotations at other trading centers. In addition, auto-ex will be disabled in certain limited circumstances where Amex believes that an auction market is appropriate to seek additional liquidity or to dampen volatility in the market. 13 *See* Rule 123-AEMI(a). In its new hybrid market, Amex will continue to have Specialists, Registered Traders, Floor Brokers, and off-floor members. 14 Every equity security traded on the Exchange will be assigned to a Specialist. Like today, Specialists will have affirmative and negative obligations to maintain a fair and orderly market in the securities in which they are registered. Registered Traders will act as supplemental market makers in ETFs. Floor Brokers can trade in the crowd or submit orders directly to the book. Off-floor members can send orders directly to the book or to Floor Brokers for representation in the crowd. In addition, Amex proposes to create a number of new order types and retain or revise certain existing order types. Generally, all AEMI order types will be available to all members, except for reserve orders and percentage orders which may be used only by Floor Brokers. 14 In a separate filing, Amex also has proposed rules relating to Registered Equity Market Makers (“REMMs”). *See* File No. SR-Amex-2006-35. B. Regulation NMS Compliance 1. Automated Trading Center Amex intends to operate AEMI as an automated trading center under Regulation NMS whose default state will be to disseminate automated quotations. 15 However, Amex has designed AEMI to revert to an auction market to provide additional liquidity and price discovery, or to dampen volatility in the market, as determined by market conditions. Thus, the AEMI rules contemplate situations where the system would disable auto-ex and mark the Amex quotation as non-firm. The Exchange intends to continuously monitor the frequency and cause of automatic execution being disabled, and has represented that it would, as necessary and with the appropriate regulatory approvals, adjust the conditions under which auto-ex could be disabled to maintain market quality for investors and retain its status as an automated trading center. 16 15 *See* 17 CFR 242.600(b)(3) (defining “automated quotation”) and 242.600(b)(4) (defining “automated trading center”). 16 *See* Amendment No. 4, at 12. a. Integration of Floor Trading The AEMI system will be augmented by a traditional trading floor. Verbal bids and offers in the crowd do not have standing in the AEMI Book. A trade negotiated in the crowd cannot be consummated until entered into the AEMI system, and such a trade could potentially be broken up by existing interest in the AEMI Book or by protected quotations at other trading centers. Negotiated trades are one-to-one trades between two crowd members (possibly including the Specialist) and are allowed only while auto-ex is enabled. Auction trades, on the other hand, may take place while auto-ex is enabled or while auto-ex is disabled. In the latter case, an auction trade may occur for the sole purpose of resolving the condition that caused auto-ex to be disabled. An auction trade is:

(1)A trade executed between or among members on the floor by open outcry (which could incorporate orders on the AEMI Book); or

(2)a cross trade executed by a member on the floor by open outcry. 17 A Specialist would immediately enter an auction trade into AEMI if it participates in the trade. If the Specialist is not part of an auction trade, the member who initiates the trade would immediately be required to report the trade to the Specialist for input into AEMI. Upon input, AEMI would:

(1)Send a report of the trade to the tape, less the size of any outbound ISOs; 18

(2)execute any orders on the AEMI Book that could be executed at the price of the auction trade;

(3)generate outbound ISO(s), as necessary; and

(4)if auto-ex had been disabled, re-enable auto-ex and disseminate a new automated APQ. Auction trades could not take place outside the APQ when auto-ex is enabled. 17 *See* Rule 128B-AEMI. 18 *See infra* Section II(B)(2)(b) (discussing use of ISOs). The Specialist would confirm and conduct the post-trade allocation for trades with more than one contra-side member, and AEMI would then send notification of individual trades to active crowd participants. The Specialist is required to confirm the initial post-trade allocation (which is an estimate computed by AEMI based on assumed participation by all of the active crowd participants and the Exchange's priority and parity rules) to allow the active crowd participants to verbally confirm whether they participated. AEMI would compute any necessary adjustments in the Specialist's allocation. If the allocation is not confirmed by the Specialist within a three-minute period following the trade, AEMI's estimated allocation to the Specialist and the active crowd participants would be used. 19 19 *See* Rule 128B-AEMI(b). b. Disabling Auto-Ex Automatic execution on AEMI would be disabled, resulting in the dissemination of a non-firm quote, in six enumerated circumstances generally relating to a large order imbalance, high volatility, or a systems malfunction. When auto-ex is disabled under the six circumstances, members may not trade in the open outcry market, other than to consummate an auction trade to remove the condition that caused auto-ex to be disabled. While auto-ex is disabled, market participants may enter or cancel bids, offers, and orders in AEMI. 20 20 *See* Amendment No. 6, *supra* note 9. i. Spread Tolerance The spread tolerance would be breached and auto-ex disabled if an inbound order walks the book beyond a predefined price level relative to the price of the security at the time of the initial execution against the order. 21 The spread tolerance is designed to mitigate volatility caused by the entry of a large order if there is no natural contra-interest on the book. The spread tolerance is an Exchange-set parameter per security and would be dynamically applied according to the first execution price of the security against the incoming order, based on the table below: 21 *See* Rule 128A-AEMI(f)(i). Stock price Tolerance (cents) Less Than $5 5 $5 to $15 15 More Than $15 25 ii. Momentum Tolerance The momentum tolerance would be breached, and auto-ex disabled, if multiple orders moved the price of a security in one direction beyond a pre-defined boundary in a 30-second time period. 22 The momentum tolerance is designed to mitigate volatility caused by a rapid succession of small orders in a short time frame. The Exchange designed the spread and momentum tolerances to work together to prevent excessive volatility. Thus, while a series of small orders might not individually trigger the spread tolerance, their combined effect could trigger the momentum tolerance. 22 *See* Rule 128A-AEMI(f)(ii). iii. Gap Trade Tolerance A gap trade tolerance would be breached if the gap between the current quotation and the last sale exceeded the parameters of the Exchange's “1%, 2, 1, 1/2 ” point rule. 23 23 *See* Rule 128A-AEMI(f)(iv); Rule 154-AEMI(e). These rules do not apply to ETFs. iv. Delayed Opening, Gap Quote, or Trading Halt AEMI also would disable auto-ex if the opening is delayed, Amex is disseminating a gap quote, or trading is halted in a security. 24 24 *See* Rule 128A-AEMI(f)(iii). A specialist may “gap the quote” when an order imbalance exists. 25 A Specialist could gap the quote when either:

(1)A large order has been represented in the crowd; or

(2)an incoming electronic order has swept the book, disabled auto-ex, and left a large imbalance. If the Specialist gaps the quote, auto-ex would be disabled and a non-firm quote disseminated to reflect the order imbalance. If auto-ex had already been disabled by a tolerance breach, it would remain disabled and the existing non-firm quote would be updated with a non-firm gapped quote. After publishing the gapped quote, the Specialist would be required to ask a Senior Floor Official or an Exchange Official to supervise the process. 25 *See* Rule 170-AEMI(f). In such a situation, the Specialist would display on the imbalance side a bid or offer equal to the price of the automated NBBO on the same side corresponding to the order causing the imbalance and show the full size of the electronic imbalance or the order represented in the crowd. The Specialist would display one round lot for the contra-side size. If the gapped quote were the result of an order represented in the crowd, the Floor Broker whose order imbalance caused the quote to be gapped would be required to enter his order into AEMI immediately. The price of the contra-side of the quotation would represent the Specialist's determination of the price at which the stock would trade if no contra-interest develops or no cancellations occur as a result of the gapped quotation. A gapped quote could be displayed up to two minutes or until offsetting interest is received electronically, such that the Specialist could pair off the imbalance and re-enable auto-ex. Auto-ex would be disabled until the Specialist performs a pair-off trade and the APQ is updated and re-automated. While the quotation is gapped, orders, cancellations, and other messages would continue to enter AEMI, but would not update the APQ and no trades would occur. In addition, commitments received via the Intermarket Trading System (“ITS”) during a gapped quote would be canceled. The Senior Floor Official or Exchange Official supervising the process will determine whether:

(1)To execute the orders immediately and terminate the gapped quote;

(2)direct the Specialist to maintain the gapped quotation to allow time for contra-side interest to develop or cancellations to occur (but in any event not more than two minutes); or

(3)halt trading in the stock. At the end of the two minutes from the initiation of the gapped quote, the Specialist, in consultation with the supervising Senior Floor Official or Exchange Official, must either:

(1)Conduct an auction trade and disseminate an automated quotation; or

(2)halt trading in the stock. The size of an imbalance suitable for gapped quoting is at least 10,000 shares or a quantity of stock having a value of $200,000 or more. However, “depending on the trading characteristics of the security, the appropriate conditions for gapped quoting may be higher.” 26 26 Rule 170-AEMI(f). v. Unusual Market Conditions AEMI also will disable auto-ex when the Exchange determines that unusual market conditions exist in one or more securities. 27 If the Exchange is unable to accurately collect, process, and/or disseminate quotation data in one or more securities due to a high level of trading activity or the existence of unusual market conditions, AEMI would immediately disable auto-ex and disseminate the indicator “N” to indicate that Amex's quotation, if a trading halt has not been declared and quotations are being published for such security or securities, is not firm. An unusual market condition affecting the Exchange's ability to disseminate quotation data would include, but not be limited to, situations where the equipment used to collect, process, and disseminate quotation data becomes inoperable. 28 27 *See* Rule 128A-AEMI(f)(vi). 28 *See* Rule 115-AEMI, Commentary .01(2). If a Specialist were unable to update its quotation on a timely basis due to the high level of trading activity or the existence of an unusual market condition, it would be required to promptly notify a Floor Official. 29 Once the Floor Official, with the involvement of a member of the Amex regulatory staff, promptly verifies the existence of the unusual market activity or condition, the Floor Official would notify Amex's Market Operations Division, which would then promptly disable auto-ex and disseminate the indicator “N” to indicate that Amex's quotation, if a trading halt has not been declared and quotations are being published for such security or securities, is not firm. The Floor Official also would consult with Amex's Market Operations Division to determine whether to declare a non-regulatory halt in such security or securities if the ability of the Specialist to promptly communicate quotation data is adversely affected. In the absence of such a non-regulatory halt, incoming orders would continue to execute against orders for the security or securities in the AEMI Book. 29 *See* Rule 115-AEMI, Commentary .01(1)(a) and .01(1)(b). vi. Cash-Close Pair-Off in ETFs For automatic execution eligible securities that trade until 4 p.m., auto-ex would be disabled one second prior to 4 p.m. if there were any on-close orders in the AEMI Book. However, for ETFs that trade until 4:15 p.m., auto-ex would be disabled:

(1)One second prior to 4 p.m., if there were any cash close orders in the AEMI Book, and resume immediately after the Specialist performed the cash close; and/or

(2)one second prior to 4:15 p.m., if there were on-close orders in the AEMI Book. 30 30 *See* Rule 131-AEMI, Commentary .03. vii. Re-Enabling Auto-Ex If auto-ex were disabled due to any tolerance breach, the Specialist would have ten seconds to attempt to re-enable auto-ex and disseminate a new automated APQ. 31 Thereafter, AEMI would periodically attempt to resume auto-ex and disseminate a new automated APQ. If the remainder of the aggressing order causing the breach expires or cancels, or if the AEMI Book is not locked or crossed, the Specialist could re-enable auto-ex prior to the expiration of the ten-second period through a “front end” device. If the order imbalance remains or if the AEMI Book remains locked or crossed, the Specialist could conduct an auction for the imbalance, and the action of printing the auction trade or performing a pair-off would automatically re-enable auto-ex and publish an automated quote. If the Specialist does not take such action or gap the quote by the end of the ten-second period, auto-ex would automatically resume if the AEMI Book is not locked or crossed. If the AEMI Book is still locked or crossed after the initial ten-second period and the Specialist has not acted, AEMI would attempt to re-enable auto-ex in ten-second intervals. When auto-ex is disabled due to the breach of a spread or momentum tolerance or a gap trade, orders and quotations (with the exception of the Specialist's quotation) that enter the AEMI Book and are priced better than the contra-side of the APQ would participate in the auction trade to eliminate the locked or crossed market. Once the pair-off is completed, AEMI would automatically disseminate a new automated APQ. 31 *See* Rule 128A-AEMI(g). 2. Compliance with Rule 611 of Regulation NMS a. Generally AEMI would generate an ISO to clear the displayed size of any better-priced protected quotation of another automated trading center before executing a trade at an inferior price, except as set forth below. 32 ISOs may be sent or received through ITS or private linkages. 33 However, AEMI would not generate an ISO when one of the exceptions in Rule 611 applies. 32 *See* Rule 126A-AEMI. 33 *See* Amendment No. 4, at 111. b. Intermarket Sweep Orders The AEMI rules contemplate both inbound and outbound ISOs. 34 An inbound ISO is a limit order for an NMS stock received by AEMI from a member which is to be executed:

(1)Immediately at the time such order is received in the AEMI Book;

(2)without regard for better-priced protected quotations displayed at one or more other trading centers; and

(3)at prices equal to or better than the limit price, with any portion not so executed to be treated as canceled. An inbound ISO could trade at multiple prices on AEMI up to its limit price, except for an inbound ISO received through the ITS or any successor thereto, which would trade only at a single price, the Amex best bid or offer. 35 34 *See* Rule 131-AEMI(j). 35 *See id.* An outbound ISO would be generated by AEMI to execute against all better-priced protected quotations displayed by other trading centers up to their displayed size. 36 An ISO would be marked as such to inform the receiving trading center that it can be executed immediately without regard to protected quotations in other trading centers. Unless an appropriate exception applied, AEMI would send ISOs for the full displayed size of any better-priced protected quotation of another trading center before executing a trade at a worse price. 37 An outbound ISO also would be generated if an order entered into the AEMI system would lock or cross a protected quotation in an away market. 38 36 *See id.* 37 *See* Rule 126-AEMI. 38 *See* Rule 126A-AEMI. Each outbound ISO would be designated as immediate-or-cancel and carry an expiration delay timer. 39 If AEMI receives a no-fill or partial fill in response to the outbound ISO and the quotation at the away market is not updated, AEMI would release the corresponding order that had been suspended so that it may re-aggress the AEMI Book (and generate new ISOs to other trading centers, if necessary). AEMI would, however, continue to route ISOs to that particular trading center's protected quotation in that security. 40 39 The expiration delay timer would control how long AEMI would wait before attempting to cancel the ISO. *See id.* 40 *See id.* If AEMI receives no response at all to an outbound ISO and assuming no system errors have been detected, AEMI would issue a cancellation at the expiration of the delay timer. This action would release the corresponding order that had been suspended on the AEMI Book pending the response to the ISO. 41 The released order would then re-aggress the AEMI Book (and generate new ISOs to other away markets, if necessary). Amex has acknowledged that, if it ultimately receives a trade report from the away market, it will be bound by the away market's rules regarding such trades. 42 41 *See id. See also* Rule 128B-AEMI(c) (describing similar procedure when Amex does not receive a response to an outbound ISO generated by an auction trade). 42 *See* Amendment No. 4, Item 9. c. Trade Reporting of Rule 611 Exceptions Following the “Trading Phase Date” of Regulation NMS (February 5, 2007), 43 the Exchange will identify all trades executed pursuant to an exception or exemption from Rule 611 of Regulation NMS in accordance with specifications approved by the operating committee of the relevant national market system plan for an NMS stock. 44 If a trade is executed pursuant to both the intermarket sweep order exception of Rule 611(b)(5) or

(6)45 and the self-help exception of Rule 611(b)(1), 46 such trade shall be identified as executed pursuant to the ISO exception. 43 By no later than February 5, 2007, all trading centers intending to qualify their quotations for trade-through protection must bring a Regulation NMS-compliant trading system into full operation for all NMS stocks intended to be traded during the phase-in period ( *i.e.* , through October 8, 2007). *See* Securities Exchange Act Release No. 53829 (May 18, 2006), 71 FR 30038 (May 24, 2006) (extending compliance dates for Rules 610 and 611 of Regulation NMS). 44 *See* Rule 126A-AEMI(a). 45 17 CFR 242.611(b)(5) or (6). 46 17 CFR 242.611(b)(1). d. Self Help The AEMI rules also provide that the Exchange may invoke “self help” in certain circumstances and thereby disregard what appears to be a protected quotation of another trading center. In Amendment No. 6, Amex added new language to Rule 126A-AEMI to provide that, in accordance with Rule 611(a) of Regulation NMS, 47 the Exchange may, pursuant to objective industry-wide established interpretations and policies, determine to bypass the quotations displayed by another trading center if such trading center repeatedly fails to respond within one second to orders attempting to access such trading center's protected quotations, provided such failures are attributable to such trading center and are not attributable to transmission outside the control of such trading center. In connection with any such determination, the Exchange will immediately notify the non-responding trading center of such determination. 47 17 CFR 242.611(a). e. Order Routing Amex would route orders to other trading centers under certain circumstances. Such routing services would occur pursuant to three separate agreements:

(1)An agreement between the Exchange and each member on whose behalf orders would be routed;

(2)an agreement between the Exchange and each third-party broker-dealer that would serve as a “give-up” on an away trading center when the member on whose behalf an order is routed is not also a member or subscriber of the away trading center; and

(3)an agreement between the Exchange and a third-party service provider pursuant to which the Exchange licenses the routing technology used by the Exchange for its routing services. 48 48 *See* Rule 126B-AEMI. With respect to these routing services, Amex would establish and maintain procedures and internal controls reasonably designed to adequately restrict the flow of confidential and proprietary information between the Exchange (including its facilities) and the third-party service provider. To the extent the provider reasonably receives confidential and proprietary information, its use of such information would be restricted to legitimate business purposes necessary for the licensing of routing technology. f. Locked and Crossed Markets Amex has proposed rules regarding locked and crossed markets, as required by Rule 610(d) of Regulation NMS. 49 Exchange members shall reasonably avoid displaying, and shall not engage in a pattern or practice of displaying, any quotations that lock or cross a protected quotation, and any manual quotations that lock or cross a quotation previously disseminated pursuant to an effective national market system plan, 50 except if one of the following exceptions applies: 51 49 17 CFR 242.610(d). 50 *See* Rule 128C-AEMI(b). 51 *See* Rule 128C-AEMI(d). • The locking or crossing quotation was displayed at a time when the trading center displaying the locked or crossed quotation was experiencing a failure, material delay, or malfunction of its systems or equipment. • The locking or crossing quotation was displayed at a time when a protected bid was higher than a protected offer in the NMS stock. • The locking or crossing quotation was an automated quotation, and the member displaying such automated quotation simultaneously routed an ISO to execute against the full displayed size of any locked or crossed protected quotation. • The locking or crossing quotation was a manual quotation that locked or crossed another manual quotation, and the member displaying the locking or crossing manual quotation simultaneously routed an ISO to execute against the full displayed size of the locked or crossed manual quotation. The rule addresses intentional locks and crosses by requiring that all locks and crosses of protected quotations be reasonably avoided and prohibiting a pattern or practice of locks or crosses. The rule also restricts the display of manual quotations that would lock or cross any type of quotation, whether automated or manual. There is no restriction on the display of automated quotations that lock or cross manual quotations. 52 52 *See* Rule 128C-AEMI, Commentary .01. g. MPV The minimum price variation (“MPV”) on AEMI for quotations and orders priced above $1.00 per share is $0.01. 53 For quotations and orders priced below $1.00 per share, the MPV on AEMI is $0.0001. 53 *See* Rule 127-AEMI. h. AEMI Implementation Rule 1A-AEMI describes the roll-out of the AEMI system. AEMI's anticipated roll-out would commence prior to the Trading Phase Date for Regulation NMS (February 5, 2007). By the Trading Phase Date, all ETFs, equities, and securities that trade like equities that are traded on the Exchange would be on the AEMI platform. During the roll-out period, while the Exchange has securities trading on its legacy and AEMI platforms, the Exchange's current rules (as amended from time to time) would apply to those securities continuing to trade on the legacy platform. The AEMI rules would apply to those securities trading on the new trading platform. When a security transfers to AEMI, the AEMI rules will govern trading in that security and the corresponding legacy rule would no longer have any applicability. When all securities have transferred off the legacy platform, Amex will submit a proposed rule change to delete any unnecessary legacy rules. The AEMI rules would cover the operation of the AEMI platform to become effective on and after the Trading Phase Date. However, Amex intends to operate a modified early version of the AEMI platform to operate prior to the Trading Phase Date. Amex has submitted a separate rule change for this interim system, which would be referred to as “AEMI-One.” That proposal makes minor modifications to the AEMI rules to account for the fact that other trading centers may not have fully implemented their Regulation NMS-compliant trading systems. 54 54 *See* Securities Exchange Act Release No. 54413 (September 8, 2006), 71 FR 54318 (September 14, 2006) (“ AEMI-One Notice”). . C. Other Rules 1. Role of Specialists Amex would have a Specialist for each security traded on AEMI. A Specialist is required “to engage in a course of dealings for its own account to assist in the maintenance, insofar as reasonably practicable, of a fair and orderly market on the Exchange.” 55 The Specialists must, among other things, maintain a two-sided quotation in every security in which it is registered. 56 To facilitate the Specialists' obligation to maintain a continuous two-sided quotation, AEMI would provide an emergency quote function. If the Specialist's quote were exhausted or decremented below a specified size, and a new quote were not automatically generated, AEMI would generate an emergency quote based on the parameters programmed by the Specialist. 55 Rule 170-AEMI(b). Thus, a Specialist's quotation in an ETF or other derivatively priced security should bear a proper relation to the value of underlying or related securities. *See* Rule 170-AEMI, Commentary .03. 56 Specialists would have a variety of ways to submit quotations into AEMI. They could:

(1)Stream two-sided quotes up to five price points on each side (one quote per price point) of the AEMI Book;

(2)generate automatic quotes (“auto-quotes”) within AEMI based on user-specified parameters relating to size, ticks, and underlying market data; or

(3)physically enter single, two-way quotes into AEMI (“solo quotes”). A Specialist could enter solo quotes at any time, which would override the best existing auto-quote or streaming quote. a. Openings At the opening, the Specialist is required to perform a pair-off of orders in the AEMI Book. 57 AEMI will permit the opening pair-off session to last no more than three seconds. During the opening pair-off session, the Specialist must select a single opening pair-off price at which AEMI will execute all market and marketable limit orders. Incoming orders, cancellations, and other messages will be held in a Message Queue and not included in the opening pair-off. If the Specialist has not completed the opening pair-off within three seconds, the pair-off session will terminate, all messages in the Message Queue will enter the AEMI Book, and the Specialist will have to reinitiate the opening pair-off session to open the security. During the actual pair-off, orders that are being processed as part of the pair-off cannot be altered or canceled. If no orders on the AEMI Book are eligible for execution on the open, the Specialist will open the security on a quotation without a trade. 57 *See* Rule 108-AEMI(d). b. Closings The Specialist also will conduct a pair-off session at the closing. In both UTP and listed securities, an on-close imbalance of 25,000 shares or more would be automatically published to the tape at 20 and then at ten minutes before the market close at 4 p.m. 58 In all securities, the closing pair-off session would commence automatically at the official closing time and disable auto-ex. To participate in the close, all orders must have been entered electronically. The Specialist will manually close each security. 58 The imbalances would be published to Consolidated Tape Association (“CTA”) Tape B for Amex listed securities. Amex is working with the Nasdaq SIP to publish the imbalances in Nasdaq UTP securities to Tape C. The Specialist would execute any imbalance at an auction price in accordance with auction market procedures and pair off and execute the remaining executable orders at that closing price. Percentage orders and stop orders elected at the closing price could be included in the close. The Specialist would conduct a post-trade allocation with respect to the shares necessary to offset the imbalance, as with a regular auction. Until this post-trade allocation process is completed, the Specialist would be responsible for the contra-side of the imbalance traded. If there are no on-close orders, the closing price would be the last sale in the security. If at the close the imbalance is too large for the Specialist and the crowd to offset, the Exchange would declare a trading halt and there would be no closing rotation for that security. In the case of certain ETFs that trade until 4:15 p.m., the Specialist could perform a “cash close” pair-off during the regular trading session at 4 p.m. prior to the official closing session on the Exchange. This would be an added service for investors wishing to mark positions to the cash close. In the event there are “market at 4 p.m. cash close” orders for an ETF, auto-ex would be disabled for that security at 4 p.m. Once the pair-off is concluded, auto-ex would resume until it is disabled for the official closing pair-off at 4:15 p.m. c. Stabilization Because of the AEMI automated environment, Amex proposes to modify certain existing rules related to Specialist obligations, in particular its existing requirements for certain transactions for the Specialist's own account involving destabilizing ticks requiring Floor Official approval. 59 In Rule 170-AEMI, Commentary .01, Amex proposes to ease the restrictions relating to a Specialist effecting transactions for its own account for the purpose of establishing or increasing a position. The following types of transactions generally would be prohibited, except with the approval of a Floor Official: 59 *See* Rule 170-AEMI. • A purchase on the offer at a price above the last regular way trade in the same trading session, or a sale short to the bid at a price below the last regular way trade in the same trading session where permitted by the Commission's short sale regulations; • The purchase of all or substantially all of the stock offered on the AEMI Book on a zero plus tick, when the stock so offered represents all or substantially all the stock offered in the market; • The supplying short of all or substantially all the stock bid for on the AEMI Book on a zero minus tick where permitted by the Commission's short sale regulations, when the stock so bid for represents all or substantially all the stock bid for in the market; and • Failing to re-offer or re-bid where necessary after effecting the transactions described above. A Specialist may also effect an auto-ex transaction on a destabilizing tick without the approval of a Floor Official in the situations described above if:

(1)The buy is on the APQ (which must be equal to the Specialist's bid) when its bid is accessed by a sell order; or

(2)the sale is on the APQ (which must be equal to its offer) when its offer is accessed by a buy order. 60 60 *See* Rule 170-AEMI, Commentary .01. In addition, Amex proposes to ease the restrictions relating to a Specialist's transactions for its own account in liquidating or decreasing a position in a registered stock. 61 Unless such transactions are reasonably necessary in relation to the Specialist's overall position and prior approval of a Floor Official has been obtained, a position may not be liquidated by selling stock to the bid on a direct minus tick or by purchasing stock on the offer on a direct plus tick. The Specialist would be permitted to effect an auto-ex transaction on a destabilizing tick without Floor Official approval if:

(1)The buy is on the Amex Published Bid (which must be equal to its bid) when its bid is accessed by a sell order; or

(2)the sale is on the Amex Published Offer (which must be equal to its offer) when the offer is accessed by a buy order. Furthermore, a Specialist's quotation should be such that a transaction effected at its quoted price or within the quoted spread, whether having the effect of reducing or increasing the Specialist's position, “would bear a proper relation to preceding transactions and anticipated succeeding transactions.” 62 In the case of ETFs or other derivatively priced securities, the Specialist's quotation should bear a proper relation to the value of the underlying or related securities. 63 61 *See* Rule 170-AEMI, Commentary .02. 62 Rule 170-AEMI, Commentary .03. 63 *See id* . d. Duty to Yield A Specialist must give precedence to orders in the Specialist Order Book, which is a subset of the AEMI Book, in any security in which it is registered before executing at the same price any trade in the same security in which it has an interest. 64 Three types of trades are excepted from that general rule: 64 *See* Rule 155-AEMI. *See also* Rule 126-AEMI(2)(a)(iv)(A)(I) (requiring an in-parity Specialist quotation to yield to any public order at the same price). • The member entering a percentage order has permitted the Specialist to be on parity. • In ETFs, the Specialist may be on parity with a broker-dealer order pursuant to Rule 126-AEMI. • The Specialist need not give precedence to an order that has been suspended in AEMI because an outbound ISO has been routed to another trading center on its behalf. The Exchange anticipates allowing a Specialist to charge commissions under AEMI for orders that require special handling or for which the Specialist otherwise provides a service as agent for the order ( *e.g.* , percentage orders). 65 However, existing Amex Rule 152(c) prohibits the Specialist from charging a commission if it is a party to the trade. Furthermore, Amex has represented that the Specialist will not be allowed to charge a commission on any transaction in AEMI to which the Specialist's proprietary position is not required to yield by AEMI rules or the Specialist's agency responsibility. For instance, an ETF Specialist will be allowed to trade on parity with, but not charge a commission for, a broker-dealer order in that ETF. 65 *See* Amendment No. 5, Item 3. 2. Role of Registered Traders Registered Traders will act as supplemental market makers in ETFs and certain other related securities. 66 The functions of a Registered Trader would essentially remain the same as today, 67 although its quote would not be imbedded in the Specialist's quote. 68 Instead, a Registered Trader would be required to maintain a quote that is competitive and separate from the Specialist. Registered Traders and Specialists are required to compete with each other to improve the quoted markets in all securities in which they trade. 69 66 *See* Rule 1A-AEMI(g) (defining “Registered Trader”); Rule 110-AEMI(o). 67 *See* Rule 110-AEMI. 68 Like a Specialist, a Registered Trader could:

(1)Stream two-sided quotes up to five price points on each side (one quote per price point) of the AEMI Book;

(2)auto-quote within AEMI based on user-specified parameters relating to size, ticks, and underlying market data; or

(3)manually enter solo quotes. The entry of a Registered Trader's solo quotes would override its best existing auto-quote or streaming quote. 69 *See* Rule 110-AEMI(u). A Registered Trader's transactions should constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and no Registered Trader should enter into transactions to make bids or offers that are inconsistent with such a course of dealings. 70 Whenever a Registered Trader enters the trading crowd in other than a floor brokerage capacity, or is called upon by a Floor Official or a Floor Broker, the Registered Trader is required to make competitive bids and offers as reasonably necessary to contribute to the maintenance of a fair and orderly market and shall engage, to a reasonable degree under the circumstances, in dealings for its own account when there exists a lack of price continuity in, or a temporary disparity between the supply of and demand for, the security it is trading. 71 A Registered Trader must meet certain trading thresholds in the securities it trades to be designated a specialist under the Act. 72 70 *See* Rule 110-AEMI(r). 71 *See* Rule 110-AEMI(s). 72 *See* Rule 110-AEMI, Commentary .02 and .03. 3. Role of Floor Brokers Floor Brokers on AEMI would be able to participate in automatic execution while continuing to represent orders in the crowd. 73 To represent a crowd order, a Floor Broker would have to be physically present. Upon leaving a crowd or logging out, a Floor Broker would be required to:

(1)Cancel all crowd orders in the AEMI Book for securities in the crowd it is leaving;

(2)electronically submit the orders in the form of percentage or limit orders to the Specialist for handling; or

(3)electronically route the crowd orders to another Floor Broker in the crowd, via a hand-held terminal. In addition, as described in greater detail below, Floor Brokers would have exclusive use of percentage orders and reserve orders. 73 *See* Amendment No. 4, at 6. 4. Priority and Parity As a general matter, the highest bid and the lowest offer shall have priority on AEMI. 74 Among orders and quotations at the same price, execution priority depends on a number of factors, including time priority, whether the order is public ( *i.e.* , it is submitted the Specialist Book) or crowd ( *i.e.* , it is represented by a Floor Broker in the crowd), whether it is a customer or broker-dealer order, and whether the order is deemed to be “in parity.” 74 *See* Rule 126-AEMI(1). a. Parity Generally Orders in parity are deemed to have been received by the AEMI system simultaneously. Therefore, an order in parity generally cannot have time priority over another order in parity. By allowing later-arriving orders to be deemed in parity, Amex seeks to mitigate the effects of minute differences in processing time or latency between competing order routing systems. Parity can be established in the following circumstances: 75 75 *See* Rule 126-AEMI(2)(a). • If a bid (offer) in a security establishes a new highest bid (lowest offer), any bid (offer) in that security communicated to AEMI within two seconds of AEMI's receipt of the original bid (offer) shall be in parity with the original bid (offer) for the next trade. • If AEMI effects a trade in a security, all visible bids and offers in that security at each price point shall be in parity for the next trade, as well as any bid (offer) in that security communicated to AEMI within two seconds of the original trade. • If all bids (offers) at the APQ are canceled, all visible bids (offers) at each lower (higher) price point shall be in parity for the next trade, as well as any bid (offer) in that security communicated to AEMI within two seconds of the cancellation of the last remaining bid (offer). 76 76 However, priority and parity of orders on one side of the book shall not be affected by the cancellation of orders at the APQ on the other side. *See* Rule 126-AEMI(2)(a)(iii). There are some exceptions to these rules for establishing parity. In ETFs, a broker-dealer (including the Specialist) whose order is in parity must yield to any customer order at the same price (regardless of whether it is a public or crowd customer order). 77 In equities, the Specialist whose order is in parity must yield to a public order at the same price, regardless of when the public order was entered into the AEMI system. 78 77 *See* Rule 126-AEMI(2)(a)(iv)(B)(I). 78 *See* Rule 126-AEMI(2)(a)(iv)(A)(I). b. Allocation Rules for ETFs For a transaction in an ETF, all customer orders (regardless of whether they are crowd customer orders or public customer orders) will be filled ahead of all broker-dealer orders at the same price. 79 Any customer orders in parity will be filled ahead of any customer orders not in parity at that price. In determining the allocation for all in-parity orders, AEMI will count all of the crowd customer orders in parity at that price point, deeming all public customer orders in parity on the Specialist Order Book as a single crowd customer order for this purpose. 80 AEMI will then allocate the remaining size of the aggressing order pro rata between the “crowd bucket” and the “public bucket.” If there are multiple public customer orders in the public bucket, they will be filled from the allocation given to the public bucket in time priority. 81 In-parity crowd customer orders in the crowd bucket will be distributed pursuant to an “allocation wheel.” 82 If any size remains to the aggressing order, any crowd customer orders and public customer orders not in parity will then be filled based on time priority. 83 79 *See* Rule 126-AEMI(2)(c). 80 *See* Rule 126-AEMI(2)(d)(v)(A). 81 *See* Rule 126-AEMI(2)(d)(v)(B). 82 *See* Rule 126-AEMI(2)(d)(vii). In general, the allocation wheel works by ranking the orders participating in the wheel in time priority. The system distributes round lots of the incoming order against the orders in the wheel through successive “rounds” until it is executed in full. 83 *See* Rule 125-AEMI(2)(c)(i)(C). If any size remains to the aggressing order after any remaining customer orders have been filled, or if there were no customer orders to begin with, AEMI will give execution priority to crowd broker-dealer orders and public broker-dealer orders (including the Specialist's quote) in a manner similar to its handling of crowd customer order and public customer orders. However, if the Specialist quote is in parity with the broker-dealer orders, AEMI will first provide an allocation to the Specialist based on the following table set forth in Rule 126-AEMI(2)(d)(vi)(B): Number of crowd participants Specialist allocation (percent) Crowd/Public allocation (percent) 1 60 40 2-4 40 60 5-7 30 70 8-15 25 75 16+ 20 80 Regardless of whether or not there are any customer orders, replenished reserve size will be executed after any visible size at that price. Any percentage orders elected by the trade event will have last priority at that price point. 84 84 *See* Rules 126-AEMI(2)(c)(i) and 126-AEMI(2)(c)(ii). c. Allocation Rules for Equity Securities For transactions in a non-ETF equity securities, execution priority under the AEMI rules depends to a greater extent on whether the order is crowd or public rather than, in ETFs, whether it is customer or broker-dealer. If there are no public orders, the crowd orders and Specialist quote could be in parity. Any such in-party orders would be distributed pursuant to an allocation wheel. 85 Any crowd orders or the specialist quote not in parity would then trade based on time priority. 86 85 *See* Rule 126-AEMI(2)(d)(i). 86 *See* Rule 126-AEMI(2)(b)(i)(B). If there are public orders, execution priority would depend on whether the public orders are in parity or not in parity, or whether some public orders are in parity and some not. If there are any public orders not in parity, the Specialist—even if its quote is in parity—will not receive any allocation until all public orders are filled. 87 For orders that are in parity, AEMI will divide the aggressing order into allocations for the “crowd bucket” and the “public bucket,” similar to the process for ETFs. All of the public orders and the Specialist's quote together count as a single crowd order for purposes of this allocation. 88 For distribution within the public bucket, the Specialist quote must yield to all public orders, regardless of the Specialist's time priority. 89 Any orders not in parity, regardless of whether they are crowd orders or public orders, will be filled in time priority, with the exception of the not-in-parity Specialist quote, which must yield to all public orders regardless of time priority. 90 As with ETFs, replenished reserve size would be executed after any visible size at that price. Any percentage orders elected by the trade event would have last priority at that price point. 91 87 *See* Rules 126-AEMI(2)(b)(iii)(C) and 126-AEMI(2)(b)(iv)(C). 88 *See* Rule 126-AEMI(2)(d)(ii)(A). 89 *See* Rule 126-AEMI(2)(d)(ii)(B). 90 *See* Rules 126-AEMI(2)(b)(iii)(B) and 126-AEMI(2)(b)(iv)(B). 91 *See* Rule 126-AEMI(b). 5. Order Types Amex proposes to retain several of its current order types in AEMI, including market orders, limit orders, stop orders, stop limit orders, good-til-canceled orders, fill-or-kill orders, and immediate-or-cancel orders. 92 In addition, Amex would eliminate certain order types that exist in its current equity trading rules. 93 Amex also proposes to create, or modify, the following order types. 92 *See* Rule 131-AEMI. 93 The AEMI system would not accept the following order types, although such orders would still be acceptable on the floor: not held orders, company buy-back orders in conformity with the safe harbor provisions of Commission Rule 10b-18, and stabilizing orders entered pursuant to Rule 104 of Regulation M in connection with purchases of a security in distribution. The following order types would no longer be permitted on the Exchange generally: “alternative” or “either/or” orders, “all-or-none orders,” “good until a specified time” orders, “scale” orders, “switch” or “contingent” orders, “time” orders, and “G” orders. a. Electronic Cross Orders The Exchange proposes to introduce the following types of electronic cross orders exclusively for ETFs and Nasdaq securities admitted to dealings on an unlisted basis:

(1)Cross;

(2)cross only;

(3)mid-point cross;

(4)IOC cross;

(5)PNP cross; and

(6)auction cross. 94 The electronic cross order type selected by the market participant would dictate whether the cross order could be broken up by orders on the AEMI Book, whether price improvement is being sought for the cross order, and how any residual of the cross order would be handled. For instance, “cross” and “cross only” orders are differentiated by their interaction with the book. A cross order could interact with orders in the AEMI Book at the cross price whereas a cross only order would not. Thus, if there were interest on the AEMI Book at the proposed price of a cross only transaction, AEMI would cancel the proposed cross. 94 *See* Rule 131-AEMI(r). An auction cross order would actively seek price improvement, and the sender of the order would designate which side (or sides) of the cross is eligible for price improvement. AEMI would display the selected side(s) for a three-second “Auction Cross Duration.” The side(s) of the cross selected for price improvement would be displayed one minimum trading increment worse than the proposed cross price ( *i.e.* , the buy side of the cross must be displayed one tick below the proposed cross price and/or the sell side of the cross must be displayed one tick above the proposed cross price). During the three second Auction Cross Duration, the displayed order could be price improved by new bids, offers, or orders entering the AEMI Book. If the cross price is equal to or better than the automated NBBO and is between the APQ at the end of the Auction Cross Duration, AEMI would execute the auction cross at the cross price. If not, the order would be cancelled to avoid trading through the automated NBBO or at or through the APQ. If one or both sides selected for display were executed in part during the Auction Cross Duration, the unfilled balance would continue to be displayed and be executed at the end of the Auction Cross Duration at the cross price, so long as it continues to be equal to or better than the automated NBBO and between the APQ. Any remainder would be canceled at the end of the Auction Cross Duration unless the order were designated Cross and Post (“CNP”), in which case the unexecuted balance would be added to the AEMI Book. If a side selected for display is executed in full during the Auction Cross Duration, the other side of the auction cross order would be canceled unless the order is designated CNP. AEMI would reject an auction cross order if the proposed cross price were at or outside the APQ or outside the automated NBBO. b. Floor Crosses A cross with size precedence 95 could not be broken up at the cross price by resting bids, offers or orders in the AEMI Book. In executing a cross trade by open outcry, members would be required to follow the crossing procedures set forth in Rule 152-AEMI (if a member or member organization is taking or supplying stock to fill a customer's order) or Rule 151-AEMI (in all other situations). A clean agency cross, satisfying the size and value parameters in Commentaries .02 and .03 to Rule 126-AEMI, could not be broken up at the cross price by resting orders on the book. Only the member who executed the cross would receive a trade notification from AEMI in the event that the cross is not broken up at the cross price by the crowd (verbally) or by resting orders on the book. 95 *See* Rule 126-AEMI, Commentary .01. c. Reserve Orders AEMI would accept the reserve order, which is a limited price order submitted to AEMI by a Floor Broker standing in the crowd consisting of both a visible and an undisplayed (reserve) size. 96 The Floor Broker would specify the visible size of the order subject to a visible size minimum established by the Exchange. If the visible size of a reserve order is decremented, AEMI would replenish the displayed size from the order's reserve quantity up to the lesser of the displayed size or the remainder of the reserve size. The reserve size would not be visible to market participants—and thus not would not be included in the APQ—but the cumulative reserve size at each price point would be visible to the Specialist. The Specialist would not be allowed to disclose reserve size in response to a market probe by a member or in response to an inquiry from a representative of the security's issuer. 96 *See* Rule 131-AEMI(s). d. Hit or Take Orders AEMI would have a “hit or take” order, which would trade against the APQ and could be entered by any member on or off the floor of the Exchange. 97 Members who wish to use the hit or take functionality must specify the price and quantity of the hit or take order. A hit or take order would expire if not immediately executed, but unlike an IOC order it is capable of generating ISOs to clear better away markets before executing on the Exchange. A hit or take order could be specified as “sell short.” 97 *See* Rule 131-AEMI(t). e. Percentage Orders AEMI would support percentage orders, which are limited price, day orders to buy (or sell) 50% of the Amex volume of a specified stock after entry into the Specialist Order Book. 98 Such orders may be entered only with “last sale” or buy-minus/sell-plus election instructions. Only a Floor Broker may enter a percentage order. A percentage order is a public order represented by the Specialist. For ETFs, a percentage order must be for a customer as opposed to a broker-dealer. Percentage orders would be executed after a “trade event” through “election” or “conversion.” Every execution due to an aggressing order is considered to be a trade event by AEMI. The elected portion of every percentage order would be executed immediately in whole or in part at the price of the electing transaction, or better. Any elected portion not so executed would revert to an unelected percentage order and could subsequently be elected or converted. 98 *See* Rule 131-AEMI(m). A percentage order could also be automatically converted into an IOC order or manually converted into either an IOC order (active manual conversion) or a regular limit order (passive manual conversion). Automatic conversions could occur during an opening, a re-opening, or the closing pair-off, and would be governed by conditions in the AEMI Book. The parameters triggering automatic conversions would be configurable. The automatically converted portion of a percentage order would be executed immediately, in whole or in part, at the price of the conversion, or better. Any portion not so executed would revert to its status as an unelected percentage order and be subject to subsequent election or conversion. The Specialist would manually convert percentage orders depending on the instruction on the percentage order. A manually converted percentage order would become an IOC order and immediately aggress the AEMI Book. A passive, manually converted percentage order would become a limit order at the APQ, and could set a new APQ or join the existing APQ. Amex proposes to remove the current restriction requiring a 5,000 share minimum order size for certain conversions. Because the average trade size at the Amex is substantially less than 5,000 shares, Amex believes that eliminating this restriction would increase the execution opportunities for percentage orders. 6. Trade Nullification and Revision Rule 135-AEMI sets forth procedures for revising the terms of a transaction or cancelling it entirely if both parties agree to the revision or cancellation. A transaction may not be canceled or revised unless it was made in error or the cancellation or revision is made for another proper reason, and prior approval of the cancellation or revision is obtained from a Floor Official. 99 99 *See* Rule 135-AEMI(a). The AEMI rules also provide that a Floor Official can cancel or revise a trade, even when one party does not agree to doing so, if the transaction is clearly erroneous. 100 The terms of a transaction are clearly erroneous when there is an obvious error in any term, such as price, number of shares or other unit of trading, or identification of the security. In reviewing a trade that is claimed to be clearly erroneous, the Floor Official shall have a view toward maintaining a fair and orderly market and the protection of investors and the public interest. A member of the Exchange's regulatory staff shall advise and participate in all steps of the Floor Official's review of the transaction. If the Floor Official determines to revise the terms of the transaction, he or she shall seek equitable rectification of the error that would place the parties in the same position, or as close as possible to the same position, as they would have been in had the error not occurred. The AEMI rules also set out procedural requirements for requesting review of a trade on the grounds that it is clearly erroneous and a procedure for appealing the Floor Official's determination. 100 *See* Rule 118-AEMI(k) (clearly erroneous transactions in Nasdaq securities); Rule 135A-AEMI (clearly erroneous transactions non-Nasdaq securities). 7. Policy Regarding Communication to and on the Floor Amex has proposed to update its policy regarding communications to and on the floor in light of AEMI implementation. 101 These changes, among other things, would require Registered Traders to develop, or secure for use, hand-held terminals that would allow:

(1)Communication of their bids and offers to AEMI;

(2)execution of trades against orders in AEMI; and

(3)notifications from the Specialist regarding the Registered Trader's post-trade allocation. Members, their employees, and their approved persons would be required to maintain a record of each transmission to or from a hand-held terminal. In addition, members would be required to implement firewalls to ensure that inappropriate communications are not sent to the floor. All clock sources would be required to be synchronized to a Stratum-1 time source using millisecond increments. The Exchange would use industry standard radio frequencies for the wireless portion of the data communications infrastructure. Amex would eliminate the current restriction on image transmission through the data communications infrastructure. 101 *See* Rule 220-AEMI. 8. Carry-Over Rules Rule 1A-AEMI(d) provides that, except to the extent governed by the AEMI rules or unless the context otherwise requires, the provisions of the Amex Constitution, the current Amex Rules, and the policies of the Board of Governors would be applicable to securities traded on AEMI. Rule 1A-AEMI(d) also expressly notes that certain current Amex rules would be applicable to trading on AEMI, including Rule 117 (relating to trading halts), Rule 190 (relating to Specialist transactions with public customers), and Rules 230 through 236 (relating to the ITS Plan). The following other rules, principally applicable to floor transactions, would continue to apply after AEMI is implemented: Rules 100, 101, 102, 103, 104, 105, 120, 122, 125, 128, 129, 153A, 171, 172, 173, 175, 176, 177, 183, 184, 185, 186, 191, 192, 193, 208, 221, and 222. III. Amendment No. 6 In Amendment No. 6, Amex proposed the following: • To replace an old Amex rule with a new Rule 24-AEMI to place limitations on proprietary trading by members and member organizations if the person entering the order has knowledge of an unexecuted customer order that could be executed at the same price; 102 102 The new Rule 24-AEMI is substantially similar to NYSE Rule 92. • To add Commentary .01, paragraph 1(b) to Rule 115-AEMI providing for the prompt disabling of auto-ex and the dissemination of a non-firm quote indicator if a Specialist or Registered Trader is unable to update its quotations on a timely basis due to a high level of trading activity or an unusual market condition; • To amend Rule 126A-AEMI requiring the Exchange to identify all trades executed pursuant to an exception or exemption from Rule 611 of Regulation NMS; • To amend Rule 126A-AEMI providing that the Exchange may invoke “self-help” under Rule 611(a) of Regulation NMS, pursuant to objective industry-wide established interpretations and policies; • To add Rule 126B-AEMI relating to agreements that govern the routing of orders to away markets; 103 103 The Commission recently noticed another Exchange proposal to establish a modified initial version of AEMI that the Exchange expects to become operational prior to the Trading Phase Date. *See* AEMI-One Notice, *supra* note 54. The routing arrangements specified in the AEMI-One Notice are the same routing arrangements that the Exchange has described in Amendment No. 6, to which the Commission is granting accelerated approval. Thus far, the Commission has received one comment letter on the AEMI-One filing. *See* Letter to Nancy M. Morris, Secretary, Commission, from Michael A. Barth, Senior Vice President, Exchange and Market Centers, Order Execution Services, Inc., dated September 22, 2006. The commenter asserts that Amex will inappropriately perform duties required to be performed by a broker-dealer, such as making decisions on when, how, and where orders are routed. Rule 611(a) of Regulation NMS requires trading centers to adopt policies and procedures reasonably designed to prevent trade-throughs on that trading center of protected quotations in NMS stocks displayed by other trading centers. In addition, an exception in Rule 611(b) requires that ISOs be routed to other market's better priced protected quotations. *See* Regulation NMS Release, 70 FR at 37501-02. The Exchange has developed its outbound routing functionality to facilitate its compliance with Regulation NMS. The Commission believes that the Exchange's arrangements for providing this functionality are consistent with the Act. • To delete certain rule text in Rule 126-AEMI relating to the Specialist allocation table; • To delete Commentaries .08 and .09 to Rule 170-AEMI; • To make minor, technical or clarifying changes to Rules 115-AEMI, 118-AEMI, Rule 128A-AEMI, 128B-AEMI, 131-AEMI, 131A-AEMI, 170-AEMI (Commentary .02(b)), and 170B-AEMI; • To make minor changes to Rule 128A-AEMI to clarify that members may not trade in the open outcry market but may enter and cancel bids, offers, and orders in AEMI under all six of the specified circumstances in the rule when auto-ex is unavailable; and • To confirm that, during the period when the Specialist is performing a pair-off under the proposed AEMI rules, the Specialist has agency responsibility to orders on the AEMI Book and is subject to traditional agency obligations and to further confirm that, when the Specialist is performing a pair-off, the Specialist may participate at the pair-off price but only after all other orders at the pair-off price trade first and that participation by the Specialist is for the purpose of absorbing the imbalance of shares that cannot participate in the pair-off. IV. Discussion After careful review, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange and, in particular, with the requirements of Section 6(b) of the Act. 104 Specifically, the Commission finds that approval of the proposal is consistent with Section 6(b)(5) of the Act 105 in that the proposal is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission also finds that the proposal is consistent with Section 6(b)(8) of the Act, 106 which prohibits an exchange's rules from imposing a burden on competition that is not necessary or appropriate in furtherance of the Act. Finally, the Commission believes that the proposal is consistent with Section 11A(a)(1)(C) of the Act, 107 in which Congress found that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure:

(1)Economically efficient execution of securities transactions;

(2)fair competition among brokers and dealers and among exchange markets, and between exchange markets, and markets other than exchange markets;

(3)the availability to brokers, dealers, and investors of information with respect to quotations and transactions in securities;

(4)the practicability of brokers executing investors' orders in the best market; and

(5)an opportunity for investors' orders to be executed without the participation of a dealer. This Order approves the proposed rule change, as amended, in its entirety, although only certain more significant aspects of the proposed rules governing AEMI are discussed below. 108 104 15 U.S.C. 78f(b). In approving this proposal, the Commission has considered the proposed rules' impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 105 15 U.S.C. 78f(b)(5). 106 15 U.S.C. 78f(b)(8). 107 15 U.S.C. 78k-1(a)(1)(C). 108 The Commission notes that certain of the proposed AEMI rules are substantially similar to existing Amex rules but with reasonable modifications for the new AEMI system. The Commission believes that these rules are reasonable and consistent with the Act. Some of these rules relate to the hours of business (Rule 1-AEMI; the authority of Floor Officials (Rule 3-AEMI); handling of odd lots (Rule 205-AEMI); and trade reporting (Rule 719-AEMI). Various rules relate to openings, closings, and states of operation, including: priority and parity at opening and reopenings (Rule 108-AEMI); trading in Nasdaq securities (Rule 118-AEMI); indications, openings, and reopenings (Rule 119-AEMI); manner of bidding and offering (Rule 123-AEMI); types of bids and offers (Rule 124-AEMI); and market-on-close policy and expiration procedures (Rule 131A-AEMI). A. Rules Designed To Comply With Regulation NMS Requirements 1. Automated Quotations/Automated Trading Center Amex has designed the AEMI system to display automated quotations and qualify the Exchange as an automated trading center under Rule 600(b)(3) of Regulation NMS. 109 Amex has stated that the visible size of the top of book for each security traded on AEMI will by default be marked as an automated quotation, and auto-ex will be the default state of operation. The AEMI platform will accept electronic bids and offers from both the Specialist and Registered Traders and include them in the AEMI Book. The AEMI platform also will accept Crowd Orders from Floor Brokers standing in the crowd and other off-floor orders transmitted to AEMI electronically, and file all such orders in the AEMI Book. On the basis of this input of bids, offers, and orders, AEMI will disseminate the Amex best quote, together with the associated visible size, to the tape. Members in the crowd can make verbal bids and offers, but these would have no standing in the AEMI Book. A trade negotiated on the floor could not be consummated until it were entered into the AEMI system. 109 17 CFR 242.600(b)(3). Orders sent to the AEMI system will be processed immediately and automatically without human intervention, except in certain limited circumstances. As described in Section II(B)(1)(b) above, four of these situations involve trading circumstances that could otherwise result in price volatility in an individual security. Of the four trading situations, three relate to breaching predefined tolerance levels held within the system, namely “spread tolerance,” “momentum tolerance,” and a “gap trade tolerance.” In the fourth circumstance (“gapping the quote”), the Specialist would manually take certain steps to address a large order imbalance. The fifth situation is the “cash close” for certain ETFs, and the sixth situation is when unusual market conditions (as defined in Rule 602 of Regulation NMS) occur. The Commission believes that Amex's general approach to integrating auto-ex with a traditional floor is reasonable and consistent with the Act. The Commission previously has found similar hybrid trading rules of another exchange, the NYSE, to be consistent with the Act. 110 The increased availability of auto-ex should facilitate the efficient execution of orders on the Exchange and enhance the opportunity for executions to occur without the participation of a dealer. 110 *See* Securities Exchange Act Release No. 53539 (March 22, 2006); 71 FR 16353 (March 31, 2006) (“NYSE Hybrid Approval Order”). Amex believes that disabling auto-ex under certain specific and published circumstances—such as where market volatility results in a breach of a spread, momentum, or gap trade tolerance—would balance the demand for speed of execution with the need to provide a stable and fair marketplace. In such circumstances, no execution, automatic or manual, would be available, except to consummate an auction trade to remove a condition that caused auto-ex to be disabled. 111 NYSE's Hybrid rules contemplate the disabling of auto-ex in similar circumstances. 112 As the Commission stated in the NYSE Hybrid Approval Order, a hybrid market model—where auto-ex is disabled in limited circumstances to reduce market volatility—is within the realm of judgment generally left to the discretion of individual markets and is consistent with the Act. 113 Accordingly, the Commission finds that Amex's use of the “spread tolerance,” “momentum tolerance,” and “gap trade tolerance” in the context of the Amex's hybrid market is consistent with the requirements of the Act. 111 *See* Rule 128A-AEMI(f). 112 *See* NYSE Rule 1000(a)(i)-(vi). 113 *See* NYSE Hybrid Approval Order, 71 FR at 16377. Amex's proposed rule regarding “gapping the quote” is similar to a rule on NYSE's Hybrid trading system. 114 Under the proposed rule, an Amex Specialist would gap the quote when either:

(1)A large order has been represented in the crowd; or

(2)an incoming order has swept the book, disabled auto-ex, and left a large order imbalance in the security. 115 Similar to NYSE, Amex has sought to ensure that a Specialist does not frequently enter gapped quotations for the purpose of disabling auto-ex by requiring that, when the Specialist gaps the quote, it must follow certain procedures and consult with a Senior Floor Official or an Exchange Official to supervise the process. 116 As it noted in the NYSE Hybrid Approval Order, the Commission believes that this limited ability to disable auto-ex is a reasonable approach for addressing the practical difficulties of integrating orders on the electronic book with large orders on the floor and addressing large order imbalances generally. 117 114 *See* NYSE Rule 1000(a)(iv). 115 Rule 170-AEMI(f) provides that the size of an imbalance suitable for gapped quoting must be at least 10,000 shares or a quantity of stock having a value of $200,000 or more, although depending on the trading characteristics of the security, the appropriate conditions for gapped quoting may be higher. 116 *See* NYSE Info Memo 04-27 (June 9, 2004) (specifying that the size of an imbalance suitable for gap quoting is at least 10,000 shares or a quantity of stock having a value of $200,000 or more although, depending on the conditions, these levels could be higher). 117 *See* NYSE Hybrid Approval Order, 71 FR at 16377. The Commission also believes that the other limited instances when auto-ex will be turned off are reasonable and consistent with the Act. Auto-ex would be disabled to allow the Specialist to perform a “cash close” pair-off during the regular trading session at 4 p.m., which would occur prior to the official closing session on the Exchange and would be an added service for those investors who wish to mark positions to the cash close. When auto-ex is disabled, whether due to a breach of a tolerance or any of the other events that cause the AEMI to revert to a manual market, the Amex quote would not be an “automated quotation,” and thus not entitled to protection under Rule 611 of Regulation NMS. When this occurs, Amex also would be required under Regulation NMS to immediately identify its quotation as a manual quotation if it is to be considered an “automated trading center.” 118 When the Amex quotation is not available for automatic execution because of a breach of a tolerance or gapped quotation, Amex would identify such quotes as non-firm. 119 Specifically, Rule 123-AEMI(h) provides that:

(1)Bids and offers disseminated through AEMI, such as when the Exchange is conducting an auction or when the Exchange is unable to accurately collect, process, and/or make available quotations under certain circumstances, are non-firm; 120 and

(2)AEMI will disseminate a specified indicator 121 whenever the APQ is not firm. In addition, the Specialist is required by Rule 128A-AEMI to take steps to re-enable auto-ex and could be subject to discipline for not acting appropriately. The Commission believes that these rules are reasonably designed to minimize the frequency and length of auto-ex unavailability and are consistent with the Act. The Commission also believes that Amex's procedures for marking its quotations as automated or non-firm are reasonable and consistent with the Act. 118 *See* 17 CFR 242.600(b)(4)(iii). 119 *See* Notice, 71 FR at 41655. The Commission also notes that proposed Rule 115-AEMI addresses situations where Amex has reason to believe it is not capable of displaying automated quotations, including communicating to members its procedures concerning a change from automated to manual quotations. *See* Rule 115-AEMI. 120 On the other hand, automated bids and offers disseminated through AEMI are firm until revised or withdrawn. Rule 123-AEMI(h). 121 The Exchange has represented that it will use:

(1)The indicator “N” to denote a non-firm quote when the Exchange is unable to accurately collect, process, and/or make available quotations; and

(2)the indicator “U” to denote a non-firm quote (and that the Specialist is arranging an auction) when

(a)auto-ex has been disabled due to the breach of a tolerance, and auto-ex and the dissemination of an automated quotation have not yet resumed, or

(b)a gap quote situation exists due to an order imbalance. These quote indicators are not to be confused with the indicators “A,” “B” and “H,” which are for firm quotes and denote that a trading center is not meeting the Regulation NMS definition of an automated trading center even though auto-ex is on. *See* Rule 123-AEMI(h). 2. Means of Protecting of Protected Quotations The AEMI platform and rules were designed to enable Amex to comply with Rule 611 of Regulation NMS, which requires, among other things, that the Exchange adopt and enforce written policies and procedures that are reasonably designed to prevent trade-throughs of protected quotations. 122 Therefore, when the APQ is not at the automated NBBO, AEMI would first determine whether a trade-through may nevertheless occur pursuant to one of eight enumerated circumstances stated in Rule 126A-AEMI. 123 If there is no applicable exception, AEMI would generate an ISO, consistent with the requirements of Rule 611 of Regulation NMS, to any trading center displaying better-priced protected quotations simultaneously with the execution of any transaction on Amex that would constitute a trade through. 124 122 The Exchange has filed separate rules with the Commission for a modified version of the AEMI platform to be in effect during the roll-out period and prior to the Trading Phase Date. *See* Securities Exchange Act Release No. 54413 (September 7, 2006), 71 FR 54318 (September 14, 2006) (noticing SR-Amex-2006-72). Prior to the Trading Phase Date, the Exchange would still be required to comply with the applicable provisions of the ITS Plan unless and until appropriate exemptions are obtained. 123 The Commission notes that each of these eight enumerated circumstances corresponds to one of the trade-through exceptions listed in Rule 611(b) of Regulation NMS. 124 However, if the incoming order is designated IOC, AEMI would cancel it and not route it to another market. *See* Rules 126A-AEMI and 131-AEMI. a. Intermarket Sweep Orders To implement the requirements of Rule 600(b)(30) of Regulation NMS, 125 the Exchange is adopting Rule 131-AEMI(k) that sets out the requirements for ISOs. An ISO is a limit order designated for automatic execution in an NMS stock that is:

(1)Received on the Exchange by AEMI from a member or another market center which is to be executed:

(a)Immediately at the time such order is received in the AEMI Book,

(b)without regard for better-priced protected quotations displayed at one or more other trading centers, and

(c)at prices equal to or better than the limit price, with any portion not so executed to be treated as canceled; 126 or

(2)generated by AEMI in connection with the execution of an order by AEMI and routed to one or more trading centers to execute against all better-priced protected quotations displayed by the other trading centers up to their displayed size. An ISO would have to be marked as such to inform the receiving trading center that it could be immediately executed without regard to protected quotations in other markets. The Commission believes that Amex's definition of ISO is consistent with the Act because it is reasonably designed to meet the requirements of Regulation NMS. The Commission notes that it previously approved similar provisions for ISOs. 127 125 17 CFR 242.600(b)(30). 126 However, if an order is received through the communications network operated pursuant to the ITS Plan or any successor to the ITS Plan, the order would trade only at a single price. *See* Rule 131-AEMI(k). 127 *See, e.g.* , NYSE Hybrid Approval Order, 71 FR at 16383. The rules governing the usage of ISOs are reasonably designed to meet the requirements of Rule 611 and, thus, are consistent with the Act. For example, Rule 126A-AEMI provides that the system would generate an ISO to any away market displaying a protected quotation simultaneously with the execution of a trade on Amex that would constitute a trade-through. Similarly, Rule 128A-AEMI(d) provides that an “[a]utomated execution will not occur without protected quotations in away markets being satisfied through the issuance of intermarket sweep orders” and proposed Rule 128B-AEMI includes provisions to generate ISOs to away markets. b. Routing of Orders As described in Section II(B)(2)(e) above, Amex would enter into agreements that govern the routing of an order to away markets with automated quotations displaying better prices. Rule 126B-AEMI describes the arrangement between the Exchange and a third-party non-facility provider of routing services. The Commission believes that engaging such a provider is a reasonable means of assuring compliance with Rule 611 of Regulation NMS. The Commission notes that the Exchange would retain control of the routing logic, which would help the Exchange assure compliance with Rule 611. 128 The Commission also notes that the rule provides for the establishment and maintenance of procedures and internal controls designed to protect confidential and proprietary information, which should help ensure that the third party does not use such information for purposes other than legitimate business purposes necessary for the licensing of routing technology. In addition, the rule provides for the equitable allocation of reasonable dues, fees, and other charges among Exchange members and issuers and other persons using the Exchange's facilities. 128 *See supra* note 103. c. Self Help Rule 611 of Regulation NMS protects only quotations that are immediately and automatically available and, as such, includes exceptions designed to assure that marketable orders are routed only to well-functioning trading centers displaying automated quotations. In this regard, Rule 611(b)(1) of Regulation NMS permits a trade through of a protected quotation if the trading center displaying the protected quotation were experiencing a failure, material delay, or malfunction of its systems or equipment when the trade-through occurred. The Commission stated in the Regulation NMS Adopting Release that this exception “gives trading centers a self-help remedy if another trading center repeatedly fails to provide an immediate response (within one second) to incoming orders attempting to access its quotes.” 129 The Commission believes that the self-help provisions of Rule 126A-AEMI—stating that the Exchange may, pursuant to objective, industry-wide established interpretations and policies and subject to certain conditions, bypass the quotations displayed by another trading center if such trading center repeatedly fails to respond within one second to orders attempting to access such trading center's protected quotations—is reasonably designed to allow Amex to invoke self-help in a manner consistent with Rule 611 of Regulation NMS. The Commission believes, therefore, that these provisions are consistent with the Act. 129 *See* Regulation NMS Adopting Release, 70 FR at 37535. d. Trade Reporting of Permissible Trade-Throughs Following the Trading Phase Date, one provision of Rule 126A-AEMI would require the Exchange to identify all trades executed pursuant to an exception or exemption from Rule 611 in accordance with specifications approved by the operating committee of the relevant national market system plan. 130 This provision of Rule 126A-AEMI is designed to create uniformity across the markets regarding how permissible trade-throughs are reported, and should create more transparency for investors and regulators. The Commission believes, therefore, that this provision of Rule 126A-AEMI furthers the public interest and is consistent with the Act. 130 In addition, if a trade is executed pursuant to both the ISO exception of Rule 611(b)(5) or

(6)and the self-help exception of Rule 611(b)(1), such trade shall be identified as executed pursuant to the ISO exception. *See* Rule 126A-AEMI. 3. Access Rule Paragraph

(a)of the Access Rule 131 prohibits a national securities exchange from imposing unfairly discriminatory terms that prevent or inhibit any person from obtaining efficient access through a member of the exchange to a quotation in an NMS stock displayed through the SRO quoting facility. The Commission believes that the AEMI rules and the AEMI platform have been reasonably designed to meet the standard in paragraph

(a)of the Access Rule. 131 17 CFR 242.610(a). In addition, paragraph

(d)of the Access Rule 132 requires a national securities exchange to establish, maintain, and enforce rules that generally require its members to avoid displaying quotations that lock or cross any protected quotation in an NMS stock and that are reasonably designed to assure the reconciliation of locked or crossed quotations in an NMS stock. Rule 128C-AEMI requires members of the Exchange, as of the Trading Phase Date of Regulation NMS, to reasonably avoid displaying, and to not engage in a practice of displaying, any quotations that lock or cross a protected quotation, and any manual quotations that lock or cross a quotation previously disseminated pursuant to an effective national market system plan, subject to certain limited exceptions. 133 The rule also requires that, if a member of the Exchange displays a manual quotation that locks or crosses a quotation previously disseminated pursuant to an effective national market system plan, the member must promptly either withdraw the manual quotation or route an ISO to execute against the full displayed size of the locked or crossed quotation. The Commission believes that this rule is consistent with Rule 610(d) of Regulation NMS. 132 17 CFR 242.610(d). 133 Prior to the Trading Phase Date, the Exchange would still be required to comply with the applicable provisions of the ITS Plan relating to locks and crosses, unless and until appropriate exemptions are obtained. 4. Sub-Penny Rule Paragraph

(a)of the Sub-Penny Rule, 134 among other things, prohibits an exchange from displaying, ranking, or accepting a quotation or order in any NMS stock priced in an increment smaller than $0.01 if the quotation or order is priced equal to or greater than $1.00 per share. If the quotation or order is priced less than $1.00, the minimum permissible increment is $0.0001. 135 The AEMI rules require quotations and orders above $1.00 to be priced in increments of at least $0.01 and quotations and orders below $1.00 to be priced in increments of at least $0.0001. 136 The Commission believes that the AEMI rules relating to minimum increments are consistent with the Sub-Penny Rule and consistent with the Act. 134 17 CFR 242.612(a). 135 *See* 17 CFR 242.612(b). 136 *See* Rule 127-AEMI; Rule 1000-AEMI, Commentary .03(e); Rule 1000A-AEMI, Commentary .02(e). 5. Transitioning from Legacy System to NMS Environment Amex intends a phased roll-out of AEMI beginning early in the fourth quarter of 2006. By the Trading Phase Date, all equities and ETFs traded by the Exchange would be on the AEMI platform. The Exchange has filed separate rules with the Commission for a modified version of the AEMI platform to be in effect during the roll-out period and prior to the Trading Phase Date. 137 The Commission believes that the Exchange's proposal for a phased roll-out of AEMI should provide it with time to test AEMI in a real trading environment with a limited number of securities. The Commission believes that this is a reasonable approach in light of the extension of the Regulation NMS compliance dates and should help ensure that the appropriate Amex rules are in place at the time that Regulation NMS compliance is required. 137 *See supra note* 122. The Commission has not taken any action on this proposal. B. Other Rules Amex has proposed a number of rule changes in addition to those designed to promote compliance with Regulation NMS. These other rule changes primarily reflect the Exchange's proposed shift from a floor-based auction market to a new hybrid market structure for equity products and ETFs. 1. Liquidity Available for Auto-Ex To facilitate automatic executions, the Exchange proposes to increase the ability of Specialists and, for ETFs, Registered Traders, to provide liquidity to the marketplace. In addition, the Exchange proposes to allow Floor Brokers to participate in automatic executions by permitting them to enter Crowd Orders, Reserve Orders, and Percentage Orders. In general, the Commission believes that allowing greater electronic access to liquidity is consistent with Section 6(b)(5) of the Act in that it should help perfect the mechanism of a free and open market. 138 138 15 U.S.C. 78f(b)(5). a. Specialist and Registered Trader Liquidity A Specialist would be required to continue to provide liquidity to meet its obligation to assist in the maintenance of a fair and orderly market and of price continuity with reasonable depth. Under the proposal, Specialists and Registered Traders (in ETFs) can add liquidity to the AEMI Book at multiple price levels. Registered Traders also are permitted to participate in auctions, provided they are actively quoting. The Commission finds that the provisions allowing both Specialists and Registered Traders to electronically participate in AEMI is consistent with the requirements of the Act. This capability generally should increase the liquidity available for auto-ex and improve the prices at which orders that access the AEMI system may execute. b. Floor Broker Liquidity Under the AEMI rules, off-floor members are permitted access to the electronic environment by sending orders directly to the AEMI Book or by directing orders to booths on the floor for representation by a Floor Broker. Floor Brokers are permitted to provide liquidity to the electronic environment in the form of Crowd Orders. In addition, Floor Brokers standing in the crowd would be able to enter Reserve Orders on behalf of their customers—which would consist of both a visible size and an undisplayed (reserve) size that would not be included in the APQ. As a Reserve Order receives executions, the displayed size would be replenished up to the maximum of the defined display size or the remainder of the order. A price point could not be traded through until all the reserve size has been exhausted. Amex also has proposed to allow Floor Brokers to use Percentage Orders. The Commission previously approved substantially similar rules relating to Floor Brokers in the NYSE Hybrid proposal. 139 The Commission believes generally that Reserve Orders and Percentage Orders are consistent with the Act because they are designed to allow Floor Brokers to replicate in a more electronic environment the services they offer to customers today, and because they offer Floor Brokers a reasonable degree of flexibility in handling and working larger customer orders. 139 *See* NYSE Hybrid Approval Order, 71 FR at 16378. 2. Role of Specialists and Registered Traders a. Generally In AEMI, Specialists—and for transactions in ETFs, Registered Traders—will continue to be required to perform their obligations to maintain a fair and orderly market. 140 For example, pursuant to Rule 170-AEMI, a Specialist must trade for its own account when there is a lack of price continuity, depth, or a disparity between supply and demand. In addition, the Specialist must continue to oversee the auction market; pair-off orders at openings, closings, and the conclusion of auctions; and play an active role when large orders are routed to the floor for execution. However, Amex proposes to grant the Specialist additional flexibility in engaging in certain transactions in its specialty securities, without the need to obtain the prior approval of a Floor Official. Amex also proposes in Rule 110-AEMI to reduce some of the Registered Trader stabilization requirements. 140 *See* Rules 110-AEMI and 170-AEMI. The Commission finds that these proposed changes are consistent with the requirements of the Act in light of the evolving responsibilities of Specialists and Registered Traders to the market. Because of the AEMI system, Floor Brokers and off-floor members will be able to see order and quotation information at the same time as Specialists and Registered Traders, thereby diminishing many time and place advantages currently enjoyed by the latter. 141 Amex has committed to make AEMI depth-of-book information broadly available, and intends to implement this program with the rollout of AEMI prior to the Trading Phase Date. 142 In addition, the expansion of auto-ex capabilities will provide market participants from off the floor much more efficient access to liquidity in AEMI. In light of these market structure changes, the Commission concludes that Amex's proposed revisions to certain of the stabilization requirements for Specialists and Registered Traders is reasonable and consistent with the Act. 141 However, Specialists will be the only market participants to have information regarding stop orders, percentage orders, and the aggregate size of reserve orders. 142 In approving Amex's proposed stabilization rules, the Commission relied on the Exchange's representation that it intends to provide depth-of-book information to vendors and direct subscribers simultaneously with the first day of AEMI operation. Moreover, the Exchange commits to providing vendors and limited direct subscribers sufficient information including technical specifications to permit them to obtain the depth-of-book data feed as of the first day of AEMI operation. *See* Notice, 71 FR at 41655. b. Application of “Effect v. Execute” Exemption from Section 11(a) of the Act Section 11(a) of the Act 143 prohibits a member of a national securities exchange from effecting transactions on that exchange for its own account, the account of an associated person, or an account over which it or its associated person exercises discretion (collectively, “covered accounts”) unless an exception applies. 144 In addition to the exemptions set forth in the Act, 145 Rule 11a2-2(T) 146 under the Act, known as the “effect versus execute” rule, provides exchange members with an exemption from the Section 11(a) prohibition. Rule 11a2-2(T) permits an exchange member, subject to certain conditions, to effect transactions for covered accounts by arranging for an unaffiliated member to execute the transactions on the exchange. To comply with Rule 11a2-2(T)'s conditions, a member

(i)Must transmit the order from off the exchange floor;

(ii)may not participate in the execution of the transaction once it has been transmitted to the member performing the execution;

(iii)may not be affiliated with the executing member; and

(iv)with respect to an account over which the member has investment discretion, neither the member nor its associated person may retain any compensation in the connection with effecting the transaction except as provided in the Rule. 143 15 U.S.C. 78k(a). 144 The Commission notes that Exchange members will no longer be able to enter “G” orders, *i.e.,* orders for covered accounts that rely on the exemption provided in Section 11(a)(1)(G) of the Act and Rule 11a1-1(T) thereunder, for an exemption from the restrictions set forth in Section 11(a) of the Act. *See* Rule 131-AEMI(u). 145 15 U.S.C. 78k(a)(1)(A) through (H). 1461 17 CFR 240.11a2-2(T). The Exchange represented that it believes that transactions for covered accounts effected in the AEMI system meet the requirements of Rule 11a2-2(T). 147 Based upon these representations, and for the reasons set forth below, the Commission believes that transactions for covered accounts executed in the AEMI system satisfy the four conditions of Rule 11a2-2(T). 147 *See* Letter from Claire P. McGrath, Senior Vice President and General Counsel, Amex, to Kelly M. Riley, Assistant Director, Division, Commission, dated August 24, 2006 (“Amex Letter”); *see also* Amendment No. 6, *supra* note 9. First, the Exchange stated that all orders sent to the Exchange for execution through AEMI will be transmitted from remote locations (via the member firm's interface) directly to the Exchange floor by electronic means. 148 The Commission has previously found that the off-floor transmission requirement may be met if a covered account order is transmitted from a remote location directly to an exchange's floor by electronic means, 149 and believes that orders sent to the Exchange for execution through AEMI from remote locations by electronic means (via the member firm interface) similarly satisfy the off-floor transmission requirement. 150 148 *See* Amex Letter, *supra* note 147. 149 *See, e.g.,* Securities Exchange Act Release Nos. 29237 (May 24, 1991), 56 FR 24853 (May 31, 1991) (regarding NYSE Off-Hours Trading Facility); 15533 (January 29, 1979), 44 FR 6084 (January 31, 1979) (regarding the Amex Post Execution Reporting System, the Amex Switching System, the Intermarket Trading System, the Multiple Dealer Trading Facility of the Cincinnati Stock Exchange, the Pacific Exchange's (“PCX”) Communications and Execution System, and the Philadelphia Stock Exchange's (“Phlx”) Automated Communications and Execution System (“1979 Release”)); and 14563 (March 14, 1978), 43 FR 11542 (March 17, 1978) (regarding the NYSE's Designated Order Turnaround System). *See also* Letter from Paula R. Jensen, Deputy Chief Counsel, Division, Commission, to Angelo Evangelou, Senior Attorney, Chicago Board Options Exchange (“CBOE”), dated March 31, 2003 (regarding CBOE's CBOEdirect system (“CBOE *direct* Letter”)); Letter from Paula R. Jenson, Deputy Chief Counsel, Division, Commission, to Jeffrey P. Burns, Assistant General Counsel, Amex, dated July 9, 2002 (regarding Amex's Auto-Ex system for options); Letter from Paula R. Jenson, Deputy Chief Counsel, Division, Commission, to Richard S. Rudolph, Counsel, Phlx, dated April 15, 2002 (regarding Phlx's AUTOM System and its automatic execution feature AUTO-X); Letter from Paula R. Jensen, Deputy Chief Counsel, Division, Commission, to Kathryn L. Beck, Senior Vice President, Special Counsel and Antitrust Compliance Officer, PCX, dated October 25, 2001 (regarding Archipelago Exchange (“ArcaEx”) (“ArcaEx Letter”)); Letter from Brandon Becker, Director, Division, Commission, to George T. Simon, Foley & Lardner, dated November 30, 1994 (regarding Chicago Match (“Chicago Match Letter”)). 150 The Commission notes that Amex members off of the Exchange floor may submit proprietary orders directly into the AEMI system or may send proprietary orders to the Amex physical floor for representation by Amex Floor Brokers. The second requirement of Rule 11a2-2(T) is that the exchange member and its associated persons may not participate in the execution of a transaction once the order has been transmitted to the exchange floor. The Exchange represented that orders submitted to AEMI will enter the queue and may be executed against a limit order on the Specialist's Book, or the account of a Registered Trader or Specialist. According to Amex, the execution of an order depends upon the other orders or quotes entered into AEMI at or around the same time as the subject order, the orders residing in the order book, and order ranking based upon the AEMI rules of precedence. 151 The Exchange stated that at no time following the submission of an order will a member retain any ability to control the timing of an execution or otherwise enjoy any special order-handling advantage. 152 151 *See* Amex Letter, *supra* note 147. 152 *See* Securities Exchange Act Release No. 44983 (October 25, 2001), 66 FR 55225 (November 1, 2001) (Order approving ArcaEx as the equities trading facility of PCX Equities Inc.); 1979 Release, *supra* note 149. *See also* CBOE *direct* Letter, *supra* note 149; Letter from Larry E. Bergmann, Senior Associate Director, Division, Commission, to Edith Hallahan, Associate General Counsel, Phlx, dated March 24, 1999 (regarding Phlx's VWAP Trading System); Letter from Catherine McGuire, Chief Counsel, Division, Commission, to David E. Rosedahl, PCX, dated November 30, 1998 (regarding Optimark); and Chicago Match Letter, *supra* note 149. The third requirement of Rule 11a2-2(T) is that the order must be executed by an exchange member that is not affiliated with the initiating member. The Commission has recognized that this requirement is not applicable when automated systems are utilized. 153 Amex represented that orders delivered directly to AEMI by Amex members will be automatically matched, routed, or executed. The Commission notes that Amex members that direct orders to Amex Floor Brokers for representation and execution in AEMI must use an unaffiliated Amex Floor Broker if they seek to rely on Rule 11a2-2(T) for an exemption from Section 11(a) of the Act. 154 Finally, the Exchange has represented that, as a prerequisite to the use of AEMI, if a member is to rely on Rule 11a2-2(T) for a covered account transaction, the member must comply with the limitations on compensation set forth in the rule. 153 For example, in considering the operation of automated execution systems operated by an exchange, the Commission noted that while there is no independent executing exchange member, the execution of an order is automatic once it has been transmitted into the systems. Because the design of these systems ensures that members do not possess any special or unique trading advantages in handling their orders after transmitting them to the exchange floors, the Commission has stated that executions obtained through these systems satisfy the independent execution requirement of Rule 11a2-2(T). *See* Securities Exchange Act Release No. 15533 (January 29, 1979). *See also e.g.,* Securities Exchange Act Release No. 44983 (October 25, 2001), 66 FR 55225 (November 1, 2001). 154 *See* Amendment No. 6, *supra* note 9. The Commission notes Amex members will not be able to rely on Section 11(a)(1)(G) of the Act. *See* Amex Rule 131-AEMI(u). 3. Priority and Parity a. Parity Joining Time Amex has indicated that the “parity joining time” feature is intended to replicate in a more electronic environment the more flexible way that parity is established on the trading floor. The Commission believes that Amex's proposal to provide for a two-second parity joining time is broadly consistent with the Act and within the realm of judgment generally left to the discretion of individual markets. b. Priority and Parity for Equities The Commission believes that the proposed rules relating to order priority and order execution for non-ETF equities are consistent with the Act. The Commission notes that a Specialist's quotation must yield to any public order being represented in the Specialist Order Book. This approach is consistent with the traditional obligations of the Specialist and is consistent with the Act. 155 The priority and parity rules for equities appear to reasonably balance the interests of the various classes of market participants in a manner consistent with the Act. The Commission believes these rules are not designed to permit unfair discrimination and do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. 155 The Commission notes that a Specialist bid (offer) in a non-ETF equity security would yield to a public bid (offer) even when AEMI receives the public bid (offer) outside the in-parity time window. c. Priority and Parity for ETFs The Commission also believes that the AEMI rules relating to order priority and order execution for ETFs are reasonable and consistent with the Act. These rules require customer orders, whether represented on the book or in the crowd, to be executed before any broker-dealer orders (including orders/quotations of the Specialist and Registered Traders) at the same price, regardless of the customer orders' time priority. The Commission believes that giving priority to customer orders in this manner is consistent with the Act. After all visible customer orders at a price are exhausted, Amex will allocate to the Specialist (if the Specialist quote is on parity with other broker-dealer orders), a percentage of the remaining order pursuant to an allocation table. The precise allocation granted to the Specialist will be based on the number of crowd participants. In view of the Specialist's obligations, such as maintaining a fair and orderly market, the Commission believes that this allocation methodology is broadly consistent with the Act and is within the realm of judgment generally left to the discretion of individual markets. 4. Cross Orders a. Electronic Crosses Amex is introducing new electronic cross order types in order to provide more trading opportunities to off-floor participants in ETFs and Nasdaq securities. The electronic cross order type selected by the market participant would dictate whether the cross could be broken up by interacting with orders on the AEMI Book, whether price improvement is being sought for the cross order, and how any residual of the cross order would be handled if it is broken up. One new cross order type in particular, the auction cross, is designed to seek price improvement for one or both sides of the cross. The Commission finds that the rules relating to electronic cross orders are consistent with the Act and should provide market participants additional flexibility in executing transactions while protecting displayed interest on the book. The auction cross order in particular would afford an opportunity for price improvement by allowing market participants to compete for one or both sides of the cross. b. Floor Crosses The Exchange proposes to continue to permit Floor Brokers to negotiate crosses in the crowd. Rule 126-AEMI, Commentaries .01 (Precedence Based on Size) and .02 (Clean Agency Cross) allow a cross to occur ahead of other orders on the book at the cross price if:

(1)The cross order is valued at $100,000 or more;

(2)in the case of precedence based on size, the cross order is greater than each individual Crowd Order, as well as greater than the aggregate size of all orders on the Specialist Order Book at the cross price; and

(3)in the case of a Clean Agency Cross, the size of the cross order is greater than the largest customer order on the Specialist Order Book at the cross price. 156 The Commission believes that these provisions are consistent with the Act. The Commission notes that it previously has approved similar crossing rules of other exchanges, and Amex's crossing rules raise no new issues. 157 156 Rule 126-AEMI, Commentaries .01 and .02, retain the existing requirement that the cross order must be for 5,000 shares or more. 157 *See* Securities Exchange Act Release No. 54391 (August 31, 2006), 71 FR 52836 (September 7, 2006) (approving SR-NSX-2006-08); Securities Exchange Act Release No. 54422 (September 11, 2006), 71 FR 54537 (September 15, 2006) (approving SR-CBOE-2004-21). 5. Unusual Markets Rule The Commission believes that Rule 115-AEMI, setting forth Exchange procedures for the use of the Unusual Markets Exception provided by Rule 602 under Regulation NMS, is consistent with the Act. If the Exchange is unable to accurately collect, process, and/or disseminate quotation data in one or more securities owing to the high level of trading activity or the existence of unusual market conditions, Amex will immediately disable auto-ex and disseminate the indicator “N” to indicate that Amex's quotation, if a trading halt has not been declared and quotations are being published for such security or securities, is not firm. Similarly, if the Specialist were unable to update its quotation on a timely basis due to the high level of trading activity or the existence of an unusual market condition, it would be required to promptly notify a Floor Official and the Floor Official would notify Amex's Market Operations Division, which shall then promptly disable auto-ex and disseminate the indicator “N” to indicate that Amex's quotation, if a trading halt has not been declared and quotations are being published for such security or securities, if not firm. The Commission also believes that the procedures for declaring the existence of an unusual market condition are consistent with the Act in that these procedures appear to be reasonably designed to promote a fair and orderly market when unusual market conditions arise. 6. Trade Nullification and Revision The AEMI rules regarding nullification or revision of clearly erroneous trades 158 are generally similar to the Exchange's current rules. In addition, new Rule 118-AEMI(k) would permit the Exchange to nullify or modify a trade if the Exchange determines that the transaction is erroneous as a result of the automatic execution of an order, bid, or offer by AEMI against an Amex quote that was not firm under one of the three exceptions to the firm quote requirement for bids and offers set forth in Rule 123-AEMI(h). The Commission believes that it is reasonable and consistent with the Act for an exchange to make transparent to its members the procedures for claiming that a trade is clearly erroneous, the standards for assessing such a claim, and the remedies available if the claim is substantiated. The AEMI rules also set forth procedures to be followed for the appeal of a determination made by a Floor Official or Floor Governor regarding such a claim. 159 These appeals procedures also are consistent with the Act as they should contribute to the trade nullification and revision procedures being exercised in a fair and reasonable manner. 158 Rules 118-AEMI(k) and 135A-AEMI. 159 Rules 118-AEMI and 135A-AEMI. C. Accelerated Approval Pursuant to Section 19(b)(2) of the Act, the Commission finds good cause to approve the proposal, as amended by Amendment No. 6, prior to the thirtieth day after the amended proposal is published for comment in the **Federal Register** . Many of the changes in Amendment No. 6 are technical in nature and are intended only to make minor clarifications to the rule text. Other changes are designed to make AEMI more transparent and raise no issues of new regulatory concern. Accordingly, the Commission finds good cause to accelerate approval of the amended proposal prior to the thirtieth day after publication in the **Federal Register** . V. Solicitation of Comments on Amendment No. 6 Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 6, including whether the amendment is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-Amex-2005-104 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-Amex-2005-104. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Amex-2005-104 and should be submitted on or before October 31, 2006. V. Conclusion For the foregoing reasons, the Commission finds that the proposed rule change, as amended, is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange, and in particular with Sections 6(b)(5) and 6(b)(8) of the Act. 160 160 U.S.C. 78f(b)(5) and 78f(b)(8). *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 161 that the proposed rule change (SR-Amex-2005-105), as amended by Amendments No. 1, 2, 3, 4, and 5, be, and it hereby is, approved, and that Amendment No. 6 is approved on an accelerated basis. 161 15 U.S.C. 78s(b)(2). 162 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 162 Nancy M. Morris, Secretary. [FR Doc. E6-16628 Filed 10-6-06; 8:45 am] BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54553; File No. SR-Amex-2006-91] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Extension of the Pilot Period Applicable to the Listing and Trading of Options on the iShares MSCI Emerging Markets Index September 29, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on September 28, 2006, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Amex has filed the proposed rule change, pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b-4(f)(6) thereunder, 4 which renders the proposal effective upon filing with the Commission. 5 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b-4(f)(6). 5 The Exchange requested the Commission to waive the five-day pre-filing notice requirement and the 30-day operative delay, as specified in Rule 19b(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to extend the pilot period applicable to the listing and trading of options on the iShares MSCI Emerging Markets Index Fund (“Fund Options”). The Amex is not proposing any changes to the rule text. The text of the proposed rule change is available on the Amex's Web site at *http://www.amex.com,* the Office of the Secretary, Amex and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, Amex included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Amex has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose On May 17, 2006, the Commission approved the Amex's proposal to list and trade the Fund Options. 6 On June 30, 2006 the Commission approved a 90-day extension to the Pilot that is due to expire October 1, 2006. 7 The Fund Options will continue to meet substantially all of the listing and maintenance standards in Commentary .06 to Amex Rule 915 and Commentary .07 to Amex Rule 916. For the requirements that are not satisfied, the Exchange continues to represent that sufficient mechanisms exist that would provide the Exchange with adequate surveillance and regulatory information with respect to the Fund Options. Continuation of the Pilot would permit the Exchange to continue to work with the Bolsa Mexicana de Valores (“Bolsa”) to develop a surveillance sharing agreement. 6 *See* Securities Exchange Act Release No. 53824 (May 17, 2006), 71 FR 30003 (May 24, 2006) (SR-Amex-2006-43). 7 *See* Securities Exchange Act Release No. 54081 (June 30, 2006), 71 FR 38911 (July 10, 2006) (SR-Amex-2006-60). Accordingly, the Exchange proposes to extend the Pilot for an additional ninety days, until December 30, 2006. 8 8 Given that December 30, 2006 is a Saturday, the Commission notes that the Pilot will in effect be extended until January 2, 2007, the first business day after December 30, 2006. 2. Statutory Basis The Amex believes the proposed rule change is consistent with Section 6(b) of the Act 9 in general, and furthers the objectives of Section 6(b)(5) of the Act, 10 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest; and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers, or to regulate by virtue of any authority conferred by the Act matters not related to the purpose of the Act or the administration of the Amex. 9 15 U.S.C. 78f(b). 10 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition Amex does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received from Members, Participants or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 11 and Rule 19b-4(f)(6) 12 thereunder because the proposed rule change:

(i)Does not significantly affect the protection of investors or the public interest;

(ii)does not impose any significant burden on competition; and

(iii)does not become operative for 30 days from the date of the filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest pursuant to Section 19(b)(3)(A)(iii) of the Act 13 and Rule 19b-4(f)(6) thereunder. 14 11 15 U.S.C. 78s(b)(3)(A). 12 17 CFR 240.19b-4(f)(6). 13 15 U.S.C. 78s(b)(3)(A)(iii). 14 17 CFR 240.19b-4(f)(6). Amex has requested that the Commission waive both the five-day pre-filing requirement and the 30-day delayed operative delay. 15 The Commission is exercising its authority to waive the five-day pre-filing notice requirement and believes that the waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. Waiver of the five-day pre-filing and 30-day operative periods will extend the Pilot, which would otherwise expire on October 1, 2006, and allow the Amex to continue in its efforts to obtain a surveillance agreement with Bolsa. The Commission notes that another self-regulatory organization recently adopted a substantially similar rule change that was effective upon filing. 16 Accordingly, the Commission designates the proposal to be effective and operative upon filing with the Commission. 17 15 17 CFR 240.19b-4(f)(6)(iii). 16 *See* Securities Exchange Act Release No. 54347 (August 22, 2006), 71 FR 51242 (August 29, 2006) (SR-CBOE-2006-72). 17 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). At any time within sixty

(60)days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors or otherwise in furtherance of the purposes of the Act. 18 18 *See* Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-Amex-2006-91 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-Amex-2006-91. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 100 F Street, NE., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of the Amex. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Amex-2006-91 and should be submitted on or before October 31, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 19 19 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-16630 Filed 10-6-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54556; File No. SR-BSE-2005-09] Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order Approving Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating to Its Minor Rule Violation Plan October 2, 2006. On February 7, 2005, the Boston Stock Exchange, Inc. (“BSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change to amend BSE Rule Chapter XXX (“Disciplining of Members—Denial of Membership”) and BSE Rule Chapter XXXIV (“Minor Rule Violations”). The Exchange filed Amendment No. 1 to the proposed rule change on July 7, 2006, and Amendment No. 2 on August 18, 2006. The proposed rule change, as amended, was published for comment in the **Federal Register** on September 1, 2006. 3 The Commission received no comments regarding the proposal. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 54374 (August 28, 2006), 71 FR 52183. BSE proposed to make the following changes: • Add “Principal Considerations in Determining Sanctions” to BSE Rule Chapter XXX; • Move Acceptance Waiver and Consent Procedures (“AWC”) from BSE Rule Chapter XXXIV to BSE Rule Chapter XXX; • Change references to the “Chief Regulatory Officer” in the AWC to the “General Counsel or his/her delegatee”; • Add a provision in BSE Rule Chapter XXX imposing a late charge when a member fails to pay a fine on a timely basis; • Add violations of the Exchange's rules governing the Intermarket Trading System to BSE Rule Chapter XXXIV; • Restructure the fine levels of violations in BSE Rule Chapter XXXIV pertaining to Failure to Display Limit Orders, Floor Order Facilitation, Failure to Designate an Order (PPS), and Dealings Outside of Exchange Operating Hours; and • Adjust the fine levels for short sale violations in BSE Rule Chapter XXXIV. The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. 4 In particular, the Commission believes that the proposal is consistent with Section 6(b)(5) of the Act, 5 because delineating factors to be considered in determining sanctions should promote transparency of the Exchange's disciplinary process and the ability to impose a late charge for the failure to pay fines should help the Exchange carry out its supervisory responsibilities. 4 In approviing this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 5 15 U.S.C. 78f(b)(5). The Commission further believes that the proposal is consistent with Sections 6(b)(1) and 6(b)(6) of the Act, 6 which require that the rules of an exchange enforce compliance with, and provide appropriate discipline for, violations of Commission and Exchange rules. In addition, because BSE Rule Chapter XVIII provides procedural rights to contest the fine for any violation of an Exchange rule and permits disciplinary proceedings on the matter, the Commission believes BSE Rule Chapter XXXIV, as amended by this proposal, provides a fair procedure for the disciplining of members and persons associated with members, consistent with Sections 6(b)(7) and 6(d)(1) of the Act. 7 6 15 U.S.C. 78f(b)(1) and 78f(b)(6). 7 15 U.S.c. 78f(b)(7) and 78f(d)(1). Finally, the Commission finds that the proposal is consistent with the public interest, the protection of investors, or otherwise in furtherance of the purposes of the Act, as required by Rule 19d-1(c)(2) under the Act 8 which governs minor rule violation plans. The Commission believes that the proposed change to BSE Rule Chapter XXXIV will strengthen the Exchange's ability to carry out its oversight and enforcement responsibilities as a self-regulatory organization in cases where full disciplinary proceedings are unsuitable in view of the minor nature of the particular violation. 8 17 CFR 240.19d-1(c)(2). In approving this proposed rule change, as amended, the Commission in no way minimizes the importance of compliance with BSE rules and all other rules subject to the imposition of fines under the minor rule violation plan of the Exchange. The Commission believes that the violation of any self-regulatory organization's rules, as well as Commission rules, is a serious matter. However, the Exchange's minor rule violation plan under BSE Rule Chapter XXXIV provides a reasonable means of addressing rule violations that do not rise to the level of requiring formal disciplinary proceedings, while providing greater flexibility in handling certain violations. The Commission expects that BSE will continue to conduct surveillance with due diligence and make a determination based on its findings, on a case-by-case basis, whether a fine of more or less than the recommended amount is appropriate for a violation under the minor rule violation plan or whether a violation requires formal disciplinary action under BSE Rule Chapter XXX. *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act 9 and Rule 19d-1(c)(2) under the Act, 10 that the proposed rule change (SR-BSE-2005-09), as amended, be, and hereby is, approved and declared effective. 9 15 U.S.C. 78s(b)(2). 10 17 CFR 240.19d-1(c)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(44). Nancy M. Morris, Secretary. [FR Doc. E6-16645 Filed 10-6-06; 8:45 am] BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54550; File No. SR-CHX-2006-05] Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Order Approving a Proposed Rule Change and Amendment No. 1 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 2 Thereto to Implement a New Trading Model September 29, 2006. I. Introduction On February 2, 2006, the Chicago Stock Exchange, Inc. (“CHX” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change to amend its rules to implement a new trading model that provides the opportunity for fully automated executions to occur within a central matching system (the “Matching System”). On August 10, 2006, the Exchange filed Amendment No. 1 to the proposed rule change. The proposed rule change, as amended by Amendment No. 1, was published for comment in the **Federal Register** on August 18, 2006. 3 The Commission received one comment letter on the proposal. 4 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 54301 (August 10, 2006), 71 FR 47836 (“Trading Rules Notice”). 4 *See* Letter from Michael A. Barth, Senior Vice President, Exchanges and Market Centers, Order Execution Services Holdings, Inc. (“OES”), to Nancy M. Morris, Secretary, Commission, dated August 25, 2006 (“OES Letter”). On September 29, 2006, the Exchange filed Amendment No. 2 to the proposed rule change. 5 This order approves the proposed rule change, as amended by Amendment No. 1. Simultaneously, the Commission is providing notice of filing of, and granting accelerated approval to, Amendment No. 2 to the proposed rule change. 5 *See* Form 19b-4 dated September 29, 2006 (“Amendment No. 2”). The text of Amendment No. 2 is available on CHX's Web site ( *http://www.chx.com* ), at the principal office of CHX, and at the Commission's Public Reference Room. *See infra* Section II.E for a discussion of Amendment No. 2. II. Description The Exchange proposes to amend its rules in order to implement a new trading model that would allow Exchange participants to interact in a fully-automated Matching System. In addition, the proposed rules would enable qualifying participant firms to register as “institutional brokers,” that, among other things, would be permitted to execute transactions outside of the Matching System under specified conditions. 6 Many of the features of the new trading model are designed to comply with Regulation NMS 7 as of the “Trading Phase Date” for the implementation of that regulation—February 5, 2007. 8 The Exchange is also proposing a number of other changes to its rules in an effort to update them generally, as well as to reflect the elimination of the trading floor and the new automated trading system that will be central to the Exchange's new trading model. 6 *See infra* Section II.C. for a more detailed discussion. 7 17 CFR 242.600 *et seq.* 8 *See infra* note 27. A. The Matching System The Matching System would be the core facility of the Exchange's new trading model. The Exchange would no longer operate a physical trading floor, but rather would operate an automated Matching System where Exchange participants could submit orders from any location for possible immediate execution. 1. Eligible Orders and Order Types The Matching System generally would accept orders that are day orders, limit orders, and orders for regular way settlement. 9 Orders could be submitted as round lots, odd lots, or mixed lots, except that orders in securities that only trade in specific share size increments would be required to be submitted only in those share sizes. 10 The Exchange believes that its quotations would qualify as “automated quotations” under Rule 600(b)(3) of Regulation NMS. 11 9 *See* proposed CHX Article 20, Rule 4(a)(1)-(3). The proposed rules provide for certain exceptions to these basic order eligibility requirements. For example, the Matching System would also accept immediate-or-cancel (“IOC”) market orders, and would permit a “non-regular way cross order” to be submitted for execution and non-regular way settlement. *See* proposed CHX Article 20, Rules 4(a)(7) and 4(b)(13) and (16). 10 *See* proposed CHX Article 20, Rule 4(a)(4). 11 *See* 17 CFR 242.600(b)(3). The Exchange's proposed rules provide that each order submitted to the Matching System must be a firm order and cannot be identified as a “manual” quotation. *See* proposed CHX Article 20, Rule 3(a). *See also infra* note 54 and accompanying text. Some of the order types accepted by the Matching System that the Exchange describes as more routine would include immediate or cancel (“IOC”) limit and market orders, 12 fill or kill (“FOK”) orders, 13 sell short and short exempt orders, 14 reserve size orders, 15 time in force orders 16 and cancel on halt orders. 17 The Matching System also would accept several different types of cross transactions, including a cross, 18 a cross with size, 19 a cross with satisfy, 20 a cross with yield, 21 a midpoint cross, 22 an ISO cross, 23 an opening cross, 24 and a non-regular way cross. 25 12 IOC orders would be executed against any orders at or better than the Exchange's Best Bid or Offer (“BBO”), including any reserve size or other undisplayed orders at or better than that price. *See* proposed CHX Article 20, Rules 4(b)(12) (IOC orders) and 4(b)(13) (IOC market orders). 13 *See* proposed CHX Article 20, Rule 4(b)(11). 14 *See* proposed CHX Article 20, Rule 4(b)(21) (sell short orders) and Rule 4(b)(22) (short exempt orders). 15 *See* proposed CHX Article 20, Rule 4(b)(20). 16 *See* proposed CHX Article 20, Rule 4(b)(23). 17 *See* proposed CHX Article 20, Rule 4(b)(3). 18 *See* proposed CHX Article 20, Rule 4(b)(4). A cross transaction would be an order to buy and sell the same security at a specific price that is better than the Exchange's displayed BBO and, for securities listed on any exchange other than Nasdaq (and for Nasdaq-listed securities, when Regulation NMS is implemented in those issues), equal to or better than the National Best Bid and Offer (“NBBO”). A cross may represent interest of one or more Exchange participants, trading for a proprietary account. *See infra* note 43 for a description of cross order executions. 19 *See* proposed CHX Article 20, Rule 4(b)(6). A cross with size would be required to be for at least 5,000 shares and for a value of $100,000 that is at a price equal to or better than the Exchange's displayed BBO and, for securities listed on the New York Stock Exchange (“NYSE”), the American Stock Exchange (“Amex”), or any other exchange except the NASDAQ Stock Market (“Nasdaq”) (and for Nasdaq-listed securities, when Regulation NMS is implemented in those issues), equal or better to the NBBO, where the size of the cross transaction is one round lot larger than the aggregate size of all interest displayed on the Exchange at that price. At such time as the Exchange disseminates a feed of all displayable orders in the Matching System, however, a cross with size order would be required to be larger only than the largest order in the Matching System at the relevant price. *See* Amendment No. 2. A cross with size transaction may represent interest of one or more participants of the Exchange. *See also infra* note 43. 20 *See* proposed CHX Article 20, Rule 4(b)(5). A cross with satisfy is designed to provide a participant with a mechanism for clearing out displayed orders in the Matching System that would otherwise have time priority (or displayed bids or offers in other market centers that would otherwise have price priority) and then effecting a cross transaction at that price. A cross with satisfy could represent interest of one or more participants of the Exchange but, to the extent that it represents interest of the participant sending the order to the Matching System, the participant

(i)would not be eligible to satisfy existing bids or offers in the Matching System at a price that is better than the cross price (when the participant's customer is on the same side of the order as the participant), and

(ii)could only satisfy bids or offers in other markets at a price that is better than the cross price if the cross is for at least 10,000 shares or has a value of at least $200,000 (a “block size order”) or is for the account of an institutional customer (defined elsewhere in the proposed rules) and the participant's customer has specifically agreed to that outcome. *See also infra* note 44. 21 *See* proposed CHX Article 20, Rule 4(b)(7). A cross with yield would automatically yield interest on the buy, sell, or either side of the order to any order already displayed in the Matching System at the same or better price. *See also infra* note 45. 22 *See* proposed CHX Article 20, Rule 4(b)(15). A midpoint cross would execute at the midpoint between the NBBO. However, if the NBBO is locked at the time a midpoint cross is received, the midpoint cross would execute at the locked NBBO. If the NBBO is crossed at the time a midpoint cross is received, the midpoint cross would be automatically cancelled. 23 *See* proposed CHX Article 20, Rule 4(b)(14), added by Amendment No. 2. An ISO cross would be defined as any type of cross order marked as required by Regulation NMS to be executed without taking any of the actions required by the Exchange's relevant rules to prevent a trade-through. 24 *See* proposed CHX Article 20, Rule 4(b)(17). Opening cross orders would execute immediately after the primary market opens in a security, at the opening price. For securities listed on NYSE, Amex and any exchange other than Nasdaq, the opening price would be the primary market opening price. For Nasdaq-listed securities (except in the case of an initial IPO), the opening price would be the midpoint of the first unlocked, uncrossed market that occurs on or after 8:30 a.m. For Nasdaq-listed securities on the date of an IPO, the opening price would be the Nasdaq opening price. *See also* proposed CHX Article 20, Rule 8(c)(2). 25 *See* proposed CHX Article 20, Rule 4(b)(16). A non-regular way cross would be designated for non-regular way settlement. These orders would be automatically executed without regard to either the NBBO or any orders for regular way settlement that might be in the Matching System. The Matching System also would accept several order types that are related to Regulation NMS, 26 and that would become effective on the Trading Phase Date of Regulation NMS. 27 For example, the Matching System would accept benchmark orders that meet the requirements of Rule 611(b)(7) of Regulation NMS. 28 The Matching System would also accept different types of intermarket sweep orders (“ISOs”), such as BBO ISOs, 29 outbound ISOs 30 and price-penetrating ISOs. 31 26 17 CFR 242.600 *et seq.* 27 *See* Securities Exchange Act Release No. 53829 (May 18, 2006), 71 FR 30038 (May 24, 2006) (setting new compliance dates for Rules 610 and 611 of Regulation NMS). 28 *See* 17 CFR 242.611(b)(7); *see also* CHX proposed Article 20, Rule 4(b)(2). A benchmark order, as defined in the proposed rules, would be an order submitted by an institutional broker, and could be executed at any price, without regard to the protected NBBO. A benchmark order could represent interest of one or more Exchange participants. 29 *See* proposed CHX Article 20, Rule 4(b)(1). BBO ISOs would execute against orders at the Exchange's BBO, without regard to whether the execution would trade through another market's protected quotation. If a BBO ISO is marked as “immediate or cancel,” any remaining balance in the order would be automatically cancelled. If a BBO ISO is not marked as “immediate or cancel,” any remaining balance in the order would be displayed in the Matching System, without regard to whether that display would lock or cross another market center. *See* proposed CHX Article 20, Rule 6(c)(3). 30 An outbound ISO would allow an Exchange participant to ask the Exchange to execute an order on the Exchange while simultaneously routing ISOs to those other markets to execute against their protected quotations. Outbound ISOs would be executed against any eligible orders in the Matching System (including any reserve size or other undisplayed orders). Other than the routing of ISOs to other market centers, no action would be taken to prevent an improper trade-through. *See* proposed CHX Article 20, Rule 4(b)(18). 31 *See* proposed CHX Article 20, Rule 4(b)(19). A price-penetrating ISO would operate much like a basic ISO, except that it would allow a participant to execute through displayed and undisplayed interest, at multiple price points, on the Exchange. In general, the Matching System would accept only orders that comply with the sub-penny restrictions set forth in Rule 612 of Regulation NMS. 32 However, contingent upon the Commission granting the necessary exemptive relief from Rule 612, the proposed rules would permit any type of cross order to be submitted to the Matching System in a sub-penny increment as small as $0.000001, provided that no type of cross, except midpoint crosses, non-regular-way crosses and cross with size orders, would be permitted to execute at a price less than $.01 better than any currently displayed same-sided interest available on the Matching System (or $.0001 better when the order is priced under $1.00). 33 32 17 CFR 242.612. 33 *See* proposed CHX Article 20, Rule 4(a)(7)(b). *See also* Amendment No. 2. Finally, the Matching System would accept “do-not-display” and “do-not-route orders.” A do-not-display order would be an order, for at least 1,000 shares when entered, that would not be displayed in whole or in part, but that would remain eligible for execution within the Matching System. 34 A do-not-route order would be executed or displayed within the Matching System and could not be routed to another market center. 35 34 *See* proposed CHX Article 20, Rule 4(b)(9). 35 *See* proposed CHX Article 20, Rule 4(b)(10). A do-not-route order would be immediately cancelled if its execution would improperly trade through the ITS BBO or another market's protected quotations. Any types of cross, IOC, or FOK orders would be deemed to have been received with a “do not route” condition because these orders either are immediately executed in the Matching System or cancelled. 2. Ranking and Display of Orders All orders received by the Matching System would be ranked by price, time of receipt, and, for round-lot orders, any display instructions received with the order. 36 Specifically, orders received by the Matching System would be ranked as follows:

(i)Limit orders that are eligible to be displayed, including the displayed portion of reserve size orders, and all odd-lot and mixed-lot orders would be ranked together, at each price point, in time priority;

(ii)at each price point, the undisplayed portions of reserve size orders would be ranked together in time priority and would be ranked after any displayed orders (and any odd-lot and mixed-lot orders) at that price; and

(iii)orders that are received with a do-not-display instruction would be ranked together, at each price point, in time priority and would be ranked after any other orders at that price. 37 36 *See* proposed CHX Article 20, Rule 8(b). Orders sent to an institutional broker for handling would not have any priority within the Matching System unless and until they are received by the Matching System. *Id.* 37 *Id.,* proposed Rule 8(b)(1)-(3). The refreshed displayed portion of a reserve-size order would receive a new ranking based on the time it was refreshed, with any remaining undisplayed portion retaining the ranking at which it was originally received. *Id.,* proposed Rule 8(b)(4). A change to an order's size or price, or its displayed portion, could impact its ranking within the Matching System. A change to the display instructions associated with an order would need to be submitted as a new order and would be ranked based on the time the new order was received. *Id.,* proposed Rule 8(b)(5). *See also* Amendment No. 2. All orders that are eligible for display would be immediately and publicly displayed through the processes set out in the appropriate transaction reporting plan for each security when they constitute the best round-lot bid or offer in the Matching System for that security. For display purposes, the Matching System would aggregate all shares, including odd-lot orders and the odd-lot portions of mixed-lot orders, at a single price point, and then round that total share amount down to the nearest round-lot amount. 38 38 *Id.,* proposed Rule 8(b)(6). For execution purposes, however, all orders would retain their rankings as described above. 3. Automatic Execution Incoming orders generally would be matched against orders in the Matching System, in the order of their ranking, at the price of each resting order, for the full amount of shares available at that price or for the size of the incoming order, if smaller. 39 If an order could not be immediately matched or matched in full when received, and it is not designated as an order type that should be immediately cancelled, 40 it or its residual portion would be placed in the Matching System and ranked. 41 39 *See* proposed CHX Article 20, Rule 8(d)(1). This general rule would be subject to certain exceptions specifically set forth in proposed CHX Article 20, Rule 8(e), and subject to the provisions relating to the prevention of trade-throughs in proposed CHX Article 20, Rule 5. 40 *See* proposed CHX Article 20, Rules 4(b)(11) through (13). Orders that would be immediately cancelled, if not executed, include FOK orders and IOC limit and market orders. 41 *See* proposed CHX Article 20, Rule 8(d)(2); *see also supra* note 37 and accompanying text. The proposed rules describe certain order types that would be subject to specific executions within the Matching System. 42 Such order types include cross and cross with size orders, 43 cross with satisfy orders, 44 cross with yield orders, 45 sell short orders, 46 do-not- display orders, 47 and inbound ITS commitment or linkage plan orders. 48 The proposed rules also describe the handling of orders in locked and crossed markets. 49 42 *See* proposed CHX Article 20, Rule 8(e). 43 *See* proposed CHX Article 20, Rule 8(e)(1). Cross and cross with size orders would be automatically executed if they meet the requirements for such order types, and would be immediately and automatically cancelled if they do not meet these requirements. 44 *See* proposed CHX Article 20, Rule 8(e)(4). In executing cross with satisfy orders, the Matching System first would determine whether the order contains a share size that is sufficient to satisfy orders in the Matching System or bids or offers in other markets, as applicable. If this requirement is not met, the cross with satisfy would be automatically cancelled. If the order meets this requirement, the Matching System then would satisfy existing orders in the Matching System or send orders or commitments to other market centers to satisfy bids or offers, as necessary to prevent a trade-through and, before updating the Exchange's quotes, would execute the cross at a price that is better than the best bid or offer to be displayed in the Matching System and, for securities listed on NYSE, Amex or any other exchange other than Nasdaq (and for Nasdaq-listed securities, when Regulation NMS is implemented in those issues), equal to or better than the NBBO. In doing so, the Matching System would determine whether the participant that sent the order to the Matching System is attempting to satisfy bids or offers in the Matching System at a price that is better than the cross price and, if so, would not allow those executions to occur, but would instead allocate the better prices to the customer, not to the participant sending the order to the Matching System. *See also supra* note 20. 45 *See* proposed CHX Article 20, Rule 8(e)(2). A cross with yield order would be automatically executed by matching the participant as principal against the customer order if the customer order that is part of a cross with yield order is at a price better than the currently displayed best bid or offer in the Matching System; provided, however, that if there is any order already displayed in the Matching System at the same price as (or better than) the participant's interest, that order or those orders would be matched against the customer order in place of the participant's interest as necessary to exhaust the customer order interest. If the customer order that is part of a cross with yield order is not eligible for an immediate execution because it is not priced better than the currently displayed bid or offer in the Matching System, the cross with yield order would be immediately and automatically cancelled. *See also supra* note 21. 46 *See* proposed CHX Article 20, Rule 8(e)(5). Sell short orders (including odd lot orders) would be displayed and executed only when permissible under the provisions of Rule 10a-1 (“Short Sale Rule”) under the Act and Regulation SHO. When a sell short order cannot be executed or displayed at its limit price under the provisions of the Short Sale Rule and Regulation SHO, the order would be automatically re-priced (without violating its limit price) to the next available price at which it can be executed or displayed. If the Matching System cannot determine an appropriate price at which to execute or display the order, the order would be automatically cancelled. *See* Amendment No. 2. 47 *See* proposed CHX Article 20, Rule 8(e)(6). A do-not-display order would be immediately and automatically cancelled if, at any point, the order would prevent the execution of an inbound order because the do-not-display order has crossed the NBBO. 48 *See* proposed CHX Article 20, Rule 8(e)(7). 49 *See* proposed CHX Article 20, Rule 6 and proposed CHX Article 20, Rule 5, Interpretation and Policy .01(e). 4. Preventing Trade-Throughs An inbound order for at least one round lot would not be eligible for execution on the Exchange if its execution would cause an improper trade-through, both prior to and following the Trading Phase Date of Rule 611 of Regulation NMS. 50 The proposed rules provide that the Exchange will follow a series of trade-through policies and procedures in determining whether a trade on the Exchange would create an improper trade-through. 51 These procedures include clock synchronization practices, as well as plans for applying the exceptions to Rule 611 of Regulation NMS. For example, the Exchange's rules contemplate using the self-help exception in Rule 611(b)(1) of Regulation NMS. 52 Further, the Exchange would automatically place an appropriate modifier on trades executed pursuant to an exemption from, or exception to, Rule 611 of Regulation NMS in accordance with specifications approved by the operating committee of the relevant national market system plan for an NMS stock. If a trade is executed pursuant to both the intermarket sweep order exception of Rule 611(b)(5) or

(6)of Regulation NMS and the self-help exception of Rule 611(b)(1) of Regulation NMS, the trade would be identified as executed pursuant to the intermarket sweep order exception. 53 The proposed rules also set forth the procedures that the Exchange would use to confirm that its own bids and offers qualify as automated quotations and, if they do not qualify as automated quotations, how the Exchange will identify such quotations as manual. 54 50 *See* proposed CHX Article 20, Rule 5. An inbound order for at least one round lot would not be eligible for execution on the Exchange if its execution would cause an improper trade-through of another ITS market or if, when Regulation NMS is implemented for a security, the execution of all or a part of the order would be improper under Rule 611 of Regulation NMS. Inbound odd lot orders and odd lot crosses would be eligible for execution on the Exchange, even if they would trade through other markets' bids and offers. 51 *See* proposed CHX Article 20, Rule 5, Interpretation and Policy .01. 52 *See* 17 CFR 242.611(b)(1); *see also* proposed CHX Article 20, Rule 5, Interpretation and Policy .01(d). 53 *See* proposed CHX Article 20, Rule 5, Interpretation and Policy .01(h). *See also* Amendment No. 2. 54 *See* proposed CHX Article 20, Rule 5, Interpretation and Policy .02. Specifically, the Exchange would send test IOC orders to the Matching System to make this determination. *See also supra* , note 11 and accompanying text. 5. Order Routing The proposed rules also contain provisions governing the routing of orders to other markets when execution in the Matching System would cause an improper trade-through. 55 If a participant has submitted a cross with satisfy or an outbound ISO order and its execution would cause an improper trade-through, the Matching System would execute the order and simultaneously route orders or commitments necessary to satisfy the bids or offers of other markets (“routing services”). Otherwise, any inbound order for at least a round lot is not eligible for execution on the Exchange if its execution would cause an improper trade-through. 56 55 *See* proposed CHX Article 20, Rule 5, Interpretation and Policy .03. 56 *See* proposed CHX Article 20, Rule 5(a). The Exchange proposes to provide these routing services pursuant to the terms of three separate agreements, to the extent that they are applicable to a specific routing decision:

(i)An agreement between the Exchange and each participant on whose behalf orders will be routed;

(ii)an agreement between each participant and a specified third-party broker-dealer that will use its routing connectivity to other markets and serve as a “give-up” in those markets; and

(iii)an agreement between the Exchange and the specified third-party broker-dealer pursuant to which the third-party broker-dealer would agree to provide routing connectivity to other markets and serve as a “give-up” for the Exchange's participants in other markets. In providing the routing services, the Exchange would use its own systems to determine when, how, and where orders (or commitments) are routed away to other markets. 57 In addition, the Exchange will establish and maintain procedures and internal controls reasonably designed to adequately restrict the flow of confidential and proprietary information between the Exchange (including its facilities) and the third-party broker-dealer, and, to the extent the third-party broker-dealer reasonably receives confidential and proprietary information, that adequately restrict the use of such information by the third party broker-dealer to legitimate business purposes necessary to provide routing connectivity and to serve as a “give-up.” 58 57 *Id.* 58 *See* Amendment No. 2, *supra* note 5. 6. Locking and Crossing Quotations With certain exceptions, Exchange participants would be required to reasonably avoid displaying, and refrain from engaging in a pattern or practice of displaying, any quotations that lock or cross a protected quotation. 59 An order would not be eligible for display on the Exchange if its display would improperly lock or cross the ITS best bid or offer or, as of the Trading Phase Date of Regulation NMS for a security, if its display would constitute a locking or crossing quotation. 60 These otherwise locking or crossing orders would either be automatically routed to another appropriate market or, if designated as “do not route,” automatically cancelled. 59 *See* proposed CHX Article 20, Rule 6. The exceptions are provided when:

(i)The locking or crossing quotation was displayed at a time when the other trading center was experiencing a failure, material delay, or malfunction of its systems or equipment;

(ii)the locking or crossing quotation was displayed at a time when a protected bid was higher than a protected offer in the NMS stock; or

(iii)the Exchange participant displaying the locking or crossing quotation simultaneously routed an intermarket sweep order to execute against the full displayed size of any locked or crossed protected quotation. 60 *See* proposed CHX Article 20, Rule 6. B. Market Makers The proposed rules in Article 16 set forth the responsibilities of a participant that registers as a market maker on the Exchange. 61 In particular, a market maker would be required to engage in a course of dealings for its own account to assist in the maintenance, to the extent reasonably practicable, of fair and orderly markets on the Exchange. A market maker's responsibilities would specifically include:

(1)Using automated systems to maintain a continuous two-sided quote, for at least a round-lot, in each of the securities in which it is registered; 62

(2)maintaining adequate minimum capital; and

(3)meeting specific quotation or trade requirements, with respect to its dealings on the Exchange, over the course of each calendar month. 63 In addition, a market maker that is registered as a market maker solely on the Exchange and engages in other business activities (or that is affiliated with a broker or dealer that engages in other business activities) would be required to establish information barriers that prevent the market maker from using material, non-public information or information about customer order flow handled by the firm in its trading activities. 64 61 An Exchange-registered market maker would be permitted to trade only on a proprietary basis and would not be permitted to handle any agency orders on the Exchange. To the extent that a participant firm wants to act as an Exchange-registered market maker and also handle orders from customers outside the facilities of the Exchange, it would be required to create and strictly enforce information barrier procedures as described *infra* at note 64 and accompanying text. Since Exchange-registered market makers are not permitted to handle agency orders, the Matching Engine will reject any cross order instructions entered by a market maker in its market maker trading account. *See* proposed CHX Article 16, Rule 1, Interpretation and Policy .02. *See also* Amendment No. 2. 62 A market maker's continuous two-sided quotes would be required to be at prices which are reasonably related to the prevailing market price of the security. *See* CHX Article 16, Rule 8, Interpretation and Policy .01. 63 *See* proposed CHX Article 16, Rule 8(a)-(c). 64 *See* proposed CHX Article 16, Rule 9. C. Institutional Brokers Participant firms for which the Exchange is the designated examining authority could register with the Exchange as institutional brokers. 65 Institutional brokers would be deemed to be participants operating on the Exchange, although they would not effect transactions from a physical trading floor (since the Exchange will no longer have a physical trading floor) and could trade from any location. A customer order would be deemed to be on the Exchange when received by an institutional broker, but would not have priority in the Matching System until it is entered into the system. 65 *See* proposed CHX Article 17, Rule 1. Each individual that would be authorized to effect trades on behalf of the firm would be required to separately register as an institutional broker representative. *See* proposed CHX Article 17, Rule 1, Interpretation and Policy .02. Institutional brokers would be required to:

(1)Enter all orders received for execution on the Exchange into an automated system to provide an electronic record of their order handling practices;

(2)handle orders with an electronic system acceptable to the Exchange that integrates their on-exchange activities with the Matching System and their trading activities in other market centers; and

(3)maintain separate accounts for handling agency transactions, principal transactions, and transactions involving errors. 66 Institutional brokers would also be required to maintain required records of their trading activities. 67 An institutional broker would be required to use due diligence to execute a market order at the best price available; to use due diligence to execute a limit order at or better than the limit price, if available; and to use brokerage judgment in the execution of a not held order. 68 66 *See* proposed CHX Article 17, Rule 3(a) through Rule 3(c). The Commission recently approved, and the Exchange has implemented, a proposed rule change regarding requirements for entering orders into an electronic system to permit the Exchange to more readily surveil broker order handling activities. *See* CHX Article 11, Rule 3; Securities Exchange Act Release No. 53772 (May 8, 2006), 71 FR 27758 (May 12, 2006). 67 *See* proposed CHX Article 17, Rule 3(f). 68 *See* proposed CHX Article 17, Rule 3(d). Institutional brokers would be required to use reasonable efforts to report all transactions that are not effected through the Exchange's Matching System to the Exchange within 10 seconds of the trade. 69 If an institutional broker executes an order outside of the Matching System, it would be required to use the Exchange's Brokerplex system to determine whether a trade would constitute a trade-through and create an electronic record that such validation had taken place. 70 In general terms, the Brokerplex system would allow an institutional broker to input the symbol for a security and pull up a window that includes a snapshot of the Matching System BBO and the NBBO. The institutional broker then could report a trade that is consistent with the orders in the Matching System and the NBBO. An institutional broker that initiates the use of this functionality to report a proprietary trade against a customer order would be required to complete the transaction report (without cancelling out of the functionality), unless the institutional broker had mistakenly input the symbol for the wrong security. The transaction also could be cancelled pursuant to CHX rules relating to cancellations of transactions, clearly erroneous transactions and systems disruptions and malfunctions. 71 69 *See* proposed CHX Article 17, Rule 3(e). 70 *See* CHX Article 17, Rule 3, Interpretation and Policy .03. 71 *See id.* Unless a customer specifically requests otherwise, an institutional broker would be required to clear the Matching System before sending an order to another market for execution. 72 The proposed rules provide exceptions to this requirement for:

(1)Outbound ITS commitments or ISOs that are being sent to another market to satisfy its displayed bid or offer; 73 and

(2)customer orders that are being sent to another market that could not be executed in the Matching System. 74 72 *See* proposed CHX Article 20, Rule 7. Any customer directives for special handling of orders would have to be documented and reported to the Exchange. 73 *See* proposed CHX Article 20, Rule 7(c). 74 *See* proposed CHX Article 20, Rule 7(d). D. Other Rule Changes Proposed Article 9, Rule 17, based on an existing Exchange rule prohibiting participants from trading ahead of customer orders, would include a provision confirming that a participant would be deemed to be holding an unexecuted customer order when that order has been sent to the Matching System, but remains unexecuted. 75 75 *See* proposed CHX Article 9, Rule 17, Interpretation and Policy .05. The proposed rule would also confirm that a participant would not be in violation of the “trading ahead” rule if it satisfied bids and offers in other markets in accordance with the requirements for a “cross with satisfy order.” *See* proposed CHX Article 9, Rule 17, Interpretation and Policy .06; *see also supra* note 20 (discussing cross with satisfy orders). The Exchange proposes to adopt a sponsored access rule, which would allow Exchange participants to provide non-participant broker-dealers with access to the Exchange. 76 Under the proposed rule, this type of sponsored access could be provided so long as the participant sponsoring access, the non-participant broker-dealer, and the Exchange entered into appropriate agreements confirming basic information about the parties' roles and responsibilities. 77 76 *See* proposed CHX Article 5, Rule 3. 77 *See id.* In addition to the changes described above, the Exchange has also proposed revisions to virtually every other chapter of its rules. These changes are generally designed to remove references to the physical trading floor, delete obsolete provisions and account for the new automated trading model, as well as to better streamline and organize the rules. For example, the CHX proposes to delete rules relating to specialists and access to the trading floor and adopt rules that contemplate remote access to the Exchange's automated trading systems. In addition, changes are being proposed to rules relating to: hours of trading, trading halts, cancelling transactions, business conduct, disciplinary matters and trial proceedings, arbitration, Exchange emergency suspension authority; committees; trading permits; limitation of liability; voting designees; registration; fingerprinting; reporting transactions; riskless principal transactions; use of a customer's give-up; books and records; firm supervision; ITS; clearance and settlement; and listing on the Exchange. E. Amendment No. 2 On September 29, 2006, the Exchange filed Amendment No. 2 to the proposed rule change, which made certain revisions to the original proposal, as amended by Amendment No. 1. In Amendment No. 2, the Exchange described its proposed phase-in plan for the new trading model. 78 In Amendment No. 2, the Exchange also provided additional discussion and clarification on certain aspects of the proposal. 78 The Exchange stated that it plans to phase in the new trading model as follows:

(i)Beginning the week of October 2, 2006, the Exchange will begin to transition Nasdaq-listed securities to the Matching System;

(ii)during the week of October 16, 2006, the Exchange will begin to transition all other securities that are not currently traded by specialists to the Matching System; and

(iii)by early November 2006, the Exchange will begin to transition securities currently traded by the Exchange's specialists to the Matching System. The Exchange stated that, in the near future, it will provide notice to participants of the exact dates for transition of specific securities. The Exchange also added a discussion of how the Exchange believes that the rules of the proposed new trading model will be consistent with Section 11(a) of the Act. 79 The Exchange stated that it believes that the proposed Matching System meets the requirements of Rule 11a2-2(T) under the Act, 80 known as the “effect versus execute” rule, which provides an exemption from the prohibition of Section 11(a). Further, the Exchange stated that it believes that the proposal does not raise any of the policy concerns that Congress sought to address in Section 11(a) of the Act including, specifically, the time and place advantages that members on exchange floors might have over non-members off the floor and the general public. 79 15 U.S.C. 78k(a). 80 17 CFR 240.11a2-2(T). In Amendment No. 2, the Exchange also made certain changes to the rule text reflecting modifications in how the Matching System will operate. Specifically, the Exchange modified the proposed rules to:

(1)Amend the definition of a “cross with size” order; 81

(2)confirm that the Matching System will evaluate most cross orders to see if they meet the “cross with size” definition and, if so, will execute them as crosses with size; 82

(3)provide that, when the Matching System lacks sufficient information to determine the appropriate price at which a sell short order could be displayed or executed, the Matching System will automatically cancel the order; 83

(4)confirm that cross orders can be submitted as ISOs; 84

(5)remove references to functionality that is not being built; 85 and

(6)confirm that a participant cannot change a “display” instruction for an order, but must submit a new order with a new display instruction. 86 In addition, the Exchange revised the proposed rules to confirm the circumstances when the Matching System would display quotes that would lock or cross the protected quotes of other markets 87 and to clarify that the Matching System will trade in increments supported by the ITS or Regulation NMS linkage plan. 88 The Exchange also clarified how a trade should be identified when it is executed pursuant to both the intermarket sweep order exception of Rule 611(b)(5) or

(6)of Regulation NMS and the self-help exception of Rule 611(b)(1) of Regulation NMS. 89 81 *See* proposed CHX Article 20, Rule 4(b)(6) (requiring a cross with size to size out all of the displayed interest at a price, but providing that, once the CHX is disseminating a book feed, a cross with size would only be required to size out the largest displayed order). 82 *See* proposed CHX Article 20, Rule 4(b)(6). 83 *See* proposed CHX Article 20, Rule 8(e)(5). 84 *See* proposed CHX Article 20, Rule 4(b)(14). 85 *See* proposed CHX Article 20, Rule 4(a)(7)(b) (removing a reference to an order that executes at the midpoint of the NBBO, because this functionality is not being built at this time). 86 *See* proposed CHX Article 20, Rule 8(b)(5). 87 *See* proposed CHX Article 20, Rule 6(d). 88 *See* proposed CHX Article 20, Rule 4(a)(7)(d); *see also* proposed CHX Article 20, Rule 4(a)(7)(e). 89 *See* proposed CHX Article 20, Rule 5, Interpretation and Policy .01(h). In Amendment No. 2, the Exchange also made certain changes intended to clarify the meaning of the proposed rules. These changes include a change in the definition of NBBO to confirm that, as of the Trading Phase Date of Regulation NMS, this term relates only to protected bids and offers; 90 the addition of language that confirms that non-regular way crosses can execute within a penny of other orders in the Matching System; 91 and a change that notes that, in the last “refresh” of a reserve size order, the number of shares may be less than the original number of displayed shares because that is all that is left. 92 Other similar changes clarify the execution of benchmark orders; 93 confirm the handling of BBO ISO orders; 94 and state, with regard to relevant provisions, that they take effect on the Trading Phase Date of Rule 611 of Regulation NMS. 95 90 *See* proposed CHX Article 1, Rule 1(o). 91 *See* proposed CHX Article 20, Rule 4(a)(7)(b) (recognizing, as already expressed in the definition of this type of order, that non-regular way cross orders execute without regard to orders in the Matching System, because all orders in the Matching System are for regular-way settlement). 92 *See* proposed CHX Article 20, Rule 4(b)(20). 93 *See* proposed CHX Article 20, Rule 4(b)(2) (confirming that benchmark orders must be executed in increments permitted by Article 20, Rule 4(a)(7)(b)). The Exchange also elaborated on its reasoning in proposing that benchmark orders only be permitted to be submitted to the Matching System by institutional brokers, and noted that other participants seeking to execute benchmark orders on the Exchange could do so through an institutional broker. 94 *See* proposed CHX Article 20, Rule 4(b)(1) (confirming that BBO ISO orders will be displayed in the circumstances set out in the rule because the participant routing the order to the Matching System has already satisfied the quotations of other markets as required by Article 20, Rule 6(c)(3)). 95 *See* , *e.g.* , proposed CHX Article 20, Rules 4(b)(1), (2), (14),

(18)and (19); *see also* proposed CHX Article 1, Rule 1(y) (defining the “Trading Phase Date” as February 5, 2007). In Amendment No. 2, the Exchange also made changes to Article 16 governing market makers. The Exchange revised the rules to prohibit an individual from registering both as a market maker trader and an institutional broker representative. 96 The Exchange also modified the rules to provide that market makers may only trade on a proprietary basis on the Exchange, and if a market maker handles agency orders off of the Exchange, it must create and enforce information barrier procedures pursuant to CHX Article 16, Rule 9. 97 96 *See* proposed CHX Article 16, Rule 1, Interpretation and Policy .01. 97 *See* proposed CHX Article 16, Rule 1, Interpretation and Policy .02. Pursuant to an exemption recently issued by the Commission, 98 the Exchange proposed further provisions in Amendment No. 2 to permit “qualified contingent trades” to be executed on the Exchange. 99 The Exchange asserts that these trades would meet the requirements of the Commission's order exempting from Rule 611(a) any trade-throughs caused by the execution of an order involving one or more NMS stocks that are components of a “qualified contingent trade,” as defined in the Commission's exemptive order. 100 98 *See* Securities Exchange Act Release No. 54389 (August 31, 2006), 71 FR 52829 (September 7, 2006) (“Qualified Contingent Trade Exemptive Order”). 99 *See* proposed CHX Article 1, Rule 2(bb) and proposed CHX Article 20, Rule 5, Interpretation and Policy .01(i). 100 *See* Qualified Contingent Trade Exemptive Order, *supra* note 98. The Exchange also added provisions requiring it to establish and maintain information barriers to restrict the flow of information between the Exchange (including its facilities) and the third-party broker-dealer providing connectivity to other trading centers, and, to the extent such third-party broker-dealer receives such information, that adequately restrict the use of such information by the third party broker-dealer to legitimate business purposes necessary to provide routing connectivity and to serve as a “give-up.” Further, in Amendment No. 2, the Exchange revised its rule text to reflect recent changes made to Exchange rules by other proposed rule changes that have been recently approved by the Commission. 101 101 In particular, the Exchange revised the proposed rule text to reflect changes to the Exchange's disciplinary rules made in SR-CHX-2005-06, *see* Securities Exchange Act Release No. 54437 (September 13, 2006), 71 FR 55037 (September 20, 2006); and to reflect changes to the Exchange's rules made in SR-CHX-2006-23, confirming that each participant firm only needs one trading permit to conduct business on the Exchange, *see* Securities Exchange Act Release No. 54494 (September 25, 2006). III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange 102 and, in particular, the requirements of Section 6 of the Act 103 and the rules and regulations thereunder. The Commission finds that the proposed rule change, as amended, is consistent with Section 6(b)(5) of the Act, 104 which requires that the rules of an exchange be designed, among other things, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. 102 The Commission has considered the proposed rule's impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). 103 15 U.S.C. 78f. 104 15 U.S.C. 78f(b)(5). A. The Matching System The Matching System would allow participants to route orders to it from any location for possible immediate execution through any communications line approved by the Exchange. 105 The adoption of the Exchange's proposed rules, which feature the Matching System as the core facility of the Exchange, will fundamentally change the Exchange's current market structure from a substantially floor-based auction market to an all-electronic one. The Commission believes that by allowing electronic access to Exchange liquidity, the proposed new model should help perfect the mechanism of a free and open market by providing investors with a more efficient mechanism to have their orders executed on the Exchange. 105 *See* proposed CHX Article 20, Rule 8(a)(1). The Commission also believes that the Exchange's new trading model should facilitate securities transactions by providing investors with faster and more efficient access to the trading interest reflected in the Exchange's published quotation, as well as interest away from the Exchange BBO. Finally, the Commission believes that the Exchange's proposal should enhance the opportunity for a customer's order to be executed without dealer participation, consistent with the goals of Section 11A of the Act. 106 106 *See* Section 11A(a)(1)(C) of the Act, 15 U.S.C. 78k-1(a)(1)(C). 1. Eligible Orders and Order Types Under the proposed rule change, participants would be permitted to submit orders to the Matching System that are day orders, limit orders, and orders for regular way settlement (as well as certain other excepted types of orders such as IOC market orders and non-regular way crosses) and generally would be permitted to submit orders as round lots, odd lots, or mixed lots. 107 The proposed rules require that orders submitted to the Matching System must meet the requirements of Rule 612 of Regulation NMS, unless an exemption therefrom applies. 108 As such, except for cross orders under certain circumstances as discussed below, 109 orders priced at or above $1.00 could not be submitted to the Matching System in increments less than $0.01, and orders priced less than $1.00 could not be submitted to the Matching System in increments less than $.0001. 110 The Commission believes that these order eligibility requirements are consistent with the Act. 107 *See supra* notes 9-10 and accompanying text. 108 17 CFR 242.612. 109 *See infra* note 124 and accompanying text. 110 *See* proposed CHX Article 20, Rule 4(a)(5). The Exchange proposes to permit the Matching System to accept a wide variety of order types. These order types include: immediate or cancel limit and market orders, fill or kill orders, sell short and short exempt orders, reserve size orders, time in force orders, cancel on halt orders, do-not-display orders, do-not-route orders, various types of cross orders, and various types of ISOs. 111 Many of these order types exist in the Exchange's current rules set, while others have been proposed exclusively for use in the new trading model or for use as of the Trading Phase Date of Regulation NMS. The Commission believes that these order types should provide Exchange participants greater flexibility in reaching their trading and investment objectives. The Commission notes that a number of the proposed order types will have different definitions prior to and following the Trading Phase Date of Regulation NMS, which should enable users to make use of the trading strategies of such order types immediately, as well as after the Trading Phase Date. 111 *See supra* Section II.A.1. As noted, the Exchange has proposed a number of cross order types for use in the Matching System. The Commission notes that the cross order is already permitted in the Exchange's electronic book. 112 A cross order would be immediately executed in the Matching System if it is priced better than the Matching System's displayed BBO and, for securities listed on any exchange other than Nasdaq (and for Nasdaq-listed securities, as of the Trading Phase Date of Regulation NMS), equal to or better than the NBBO. 113 Similarly, a form of the cross with size order is already permitted in the Exchange's electronic book. 114 Under the proposed rules, a cross with size will be required to be larger than the aggregate size of all displayable orders displayed on the Matching System at the cross price, consist of at least 5,000 shares, and have a value of $100,000. The Commission notes that it has previously approved a similar rule at another exchange. 115 112 *See* current CHX Article XXA, Rule 2. 113 *See* proposed CHX Article 20, Rule 4(b)(4) and *supra* note 18. 114 *See* current CHX Article XXA, Rule 2. 115 *See* Rules of the National Stock Exchange, Inc., Rule 11.12. The Exchange is also proposing several completely new cross order types that would be accepted by the Matching System, such as cross with satisfy 116 and cross with yield orders. 117 The Commission believes that these cross orders may provide an efficient means to allow participants to effect cross transactions in the Matching System, consistent with the Exchange's other priority and trade-through rules, in circumstances where a cross order would otherwise be unable to be executed and would be cancelled. A cross with satisfy order would contain an instruction to execute orders already displayed in the Matching System at their limit prices (up to a specified number of shares) to the extent necessary to allow the cross transaction to occur or to route outbound orders or commitments to other market centers to the extent necessary to prevent an improper trade-through. 118 Once the satisfying execution has occurred, the cross order would be executed at a price that is better than the Matching System's displayed BBO and, for securities listed on any exchange other than Nasdaq (and for Nasdaq-listed securities, as of the Trading Phase Date of Regulation NMS), equal to or better than the NBBO. 116 *See supra* note 20. 117 *See supra* note 21. 118 *See* proposed CHX Article 20, Rule 4(b)(5). The cross with yield order is similar to the cross with satisfy, and would contain an instruction to yield interest on the buy, sell, or either side of the order (as specified in the order) to any order already displayed in the Matching System at the same or better price, to the extent necessary to allow the cross transaction to occur. 119 The cross order would then be executed at a price that is better than the best bid or offer to be displayed in the Matching System, and, for securities listed on any exchange other than Nasdaq (and for Nasdaq-listed securities, as of the Trading Phase Date of Regulation NMS), equal to or better than the NBBO. 119 *See* proposed CHX Article 20, Rule 4(b)(7). The Matching System would also accept mid-point cross orders, which would be executed at the midpoint of the NBBO. 120 The Commission notes that this order type has been previously approved for other exchanges. 121 The Exchange also proposes to permit a non-regular way cross order, which would be for non-regular way settlement and would execute without regard to the NBBO or any other orders in the Matching System. 122 The Commission notes that the Exchange has represented that participants can currently execute orders for non-regular way settlement in the Exchange's electronic book and on the floor of the Exchange, 123 but this cross order type would be the only means to effectuate this type of transaction within the Matching System. 120 *See supra* note 22. 121 *See* , *e.g.* , NYSE Arca Equities Rule 7.31(y). 122 *See supra* note 25. 123 *See* current CHX Article XX, Rule 9; CHX Article XXA, Rule 2(c)(5). Contingent upon the Exchange receiving exemptive relief from the Commission, the Exchange proposes to allow all cross orders to be submitted to the Matching System in sub-penny increments as small as $.000001, regardless of their price. 124 Although participants would be permitted to submit crosses in sub-penny increments, the Exchange proposes that cross orders (except for a midpoint cross, non-regular-way cross or cross with size) would be required to be priced at least $.01 better than any order on the same side of the Matching System (or, for orders priced less than $1.00, at least $.0001 better than any order on the same side of the Matching System). 124 *See* proposed CHX Article 20, Rule 4(a)(7)(b) (stating that the provision “shall take effect upon the granting of exemptive relief by the Commission”). The Commission believes that the proposed rules relating to cross transactions are consistent with the Act and offer participants flexibility in executions which meet the specified requirements of each type of cross. In addition, the Commission notes that proposed CHX Article 9, Rule 17, which restricts trading ahead of customer orders, would apply to the cross order types, except as noted in Interpretation and Policy .06 of that rule with respect to cross with satisfy orders. 125 125 *See* proposed CHX Article 9, Rule 17. The Exchange also proposes to permit the Matching System to accept several order types modeled on the exceptions in Rule 611(b) of Regulation NMS. The Matching System would accept various ISOs, which would allow the Exchange to immediately execute such orders without regard to other markets' protected quotations, as contemplated by Regulation NMS. 126 The Commission believes that these proposed order types are consistent with the Act, and notes that these provisions will not become effective until the Trading Phase Date of Regulation NMS. 126 *See supra* notes 29-31. The Matching System would also accept do-not-display 127 and do-not-route orders. 128 The do-not-display order could be partially or wholly undisplayed. Such an order would remain eligible for execution in the Matching System, but would be ranked behind displayed orders and behind the undisplayed portions of reserve size orders. This order type gives a participant the ability to keep trading interest unseen, but at the same time allows the order to remain eligible for execution while being ranked behind any displayed interest in the Matching System. As its name implies, a do-not-route order is an order that could not be routed to another market. A do-not-route order would be immediately cancelled if its execution would improperly trade through the ITS BBO or another market's protected quotations. 129 The Commission believes that these proposed order types may offer participants greater flexibility in the handling of their orders and are consistent with the Act. 127 *See supra* note 34 and accompanying text. 128 *See supra* note 35 and accompanying text. 129 *See* proposed CHX Article 20, Rule 5(a). 2. Ranking and Display of Orders Under the proposed rule change, all orders received by the Matching System would be ranked by price, time of receipt, and any display instructions. 130 No distinction would be made with regard to agency orders and professional or proprietary orders for priority purposes. 131 Orders would be displayed to the public when they constitute the best round-lot bid or offer in the Matching System for a security. 130 *See supra* notes 36-37 and accompanying text. 131 The Commission has approved similar priority rules for the CHX's electronic book. *See* Securities Exchange Act Release No. 52094 (July 21, 2005), 70 FR 43913 (July 29, 2005). Generally, incoming orders would be matched against orders in the Matching System, in the order of their ranking, at the price of each resting order, for the full amount of shares available at that price or for the size of the incoming order, if smaller. 132 However, orders would be subject to the proposed provisions prohibiting improper trade-throughs, 133 and certain order types would be subject to specific executions within the Matching System. 134 Unless the terms of the order direct otherwise, any order that could not be immediately executed or executed in full would be ranked in the Matching System in accordance with the Exchange's order priority rules. 135 In addition, the proposed rules provide that, unless a customer specifically requests otherwise, institutional brokers would be required to clear the Matching System before routing an order to another market, subject to certain exceptions. 136 132 *See* proposed CHX Article 20, Rule 8(d)(1). 133 *See* proposed CHX Article 20, Rule 5; *see also supra* notes 50-54 and accompanying text. 134 *See supra* notes 43-49. 135 *See supra* notes 40-41 and accompanying text. 136 *See supra* notes 72-74 and accompanying text. The Commission believes that the proposed rules relating to ranking, display and execution of orders are consistent with the Act. 137 In particular, the Commission believes that the priority rules and automatic execution functionality should result in a more efficient market and promote competition in the national market system. Further, the Commission believes that requiring institutional brokers to clear the Matching System before routing an order to another market is consistent with previous Exchange rules requiring members to “clear the post” prior to routing orders to other markets, which also were intended to promote interaction of orders on the Exchange. 137 The Exchange has represented that the Matching System meets the requirements set forth in Rule 11a2-2(T) and therefore complies with Section 11(a) of the Act. *See* text accompanying notes 79-80. The Commission notes that the Exchange has the obligation to enforce the provisions of the Act, including Section 11(a) thereunder. B. Routing The Exchange proposes to provide outbound routing services to participants for orders submitted to the Exchange that cannot be executed in whole or in part on the Exchange because of the trade-through provisions of Regulation NMS. The Exchange will use its own systems to determine when, how and where orders are routed away to other markets. To provide the necessary connectivity to transmit such orders to, and obtain executions on, other markets, the Exchange proposes to use the services of a third-party broker-dealer. The services would be provided pursuant to three separate agreements among the Exchange, the participant on whose behalf orders would be routed, and the third-party broker-dealer. The Exchange has represented that its routing services would be provided in accordance with its rules, the Act, and the rules thereunder. In particular, the Exchange routing arrangements would:

(1)Provide for the equitable allocation of reasonable, dues, fees, and other charges among its participants and other persons using its facilities relating to the routing services; and

(2)prohibit unfair discrimination among customers, issuers, brokers or dealers in connection with the routing services. The Commission received one comment letter regarding the proposed rule change relating to routing services. 138 In its comment letter, OES asserted that the third-party broker-dealer described above would operate as a system of communication of the Exchange and therefore should be deemed a facility of the Exchange under Section 3(a)(2) of the Act. In Amendment No. 2, CHX responded to the OES Letter and stated its view that the third-party broker-dealer would not be a facility of the Exchange. 138 OES Letter, *supra* note 4. The Commission does not believe that the third-party broker-dealer providing connectivity to other markets as described above should necessarily be deemed to be a facility of the Exchange. Unlike the broker-dealer addressed in the Commission's Order approving the Pacific Exchange's rules establishing the Archipelago Exchange, 139 the third-party broker-dealer will not be owned by CHX or an affiliate of CHX. In this case, CHX will use its own systems to determine when, how, and where orders are routed away to other markets. Moreover, all of the terms and conditions for CHX members to obtain outbound routing services will be subject to CHX rules, which must be filed for approval with the Commission. The CHX rules must, among other things, provide for the equitable allocation of reasonable fees or other charges for outbound routing services and must not permit unfair discrimination among CHX members for access to the outbound routing services. CHX is contracting with an unaffiliated third-party broker-dealer solely to provide the necessary connectivity to obtain the execution of outbound orders on other markets. Given this limited role, the third-party broker-dealer should not be deemed a facility of CHX under Section 3(a)(2) of the Act. Accordingly, the Commission finds that CHX's proposed routing arrangements are consistent with the Act. 139 *See* Securities Exchange Act Release No. 44983 (October 25, 2001) 66 FR 55225 (November 1, 2001). C. Market Makers Exchange market makers would be required to engage in a course of dealings to assist in the maintenance, to the extent reasonably practicable, of fair and orderly markets. 140 Specifically, market makers would have an obligation to maintain continuous two-sided quotes for the securities in which it is registered, at prices reasonably related to the prevailing market; to maintain adequate capital; and to meet certain monthly quotation requirements. 141 The proposed rules also impose other obligations on market makers, including a requirement to establish information barriers when engaging in other business activities. 142 These rules governing CHX market makers are similar to other exchanges' rules previously approved by the Commission. 143 Accordingly, the Commission believes that the proposed rules are consistent with the Act. 140 *See* proposed CHX Article 16, Rule 8. 141 *See id* . 142 *See supra* note 64 and accompanying text. 143 *See, e.g.* , Nasdaq Rule 4613 and NYSE Arca Equities Rules 7.23-7.26. D. Institutional Brokers Under the Exchange's proposed rules, institutional brokers would be considered to be “on the Exchange,” and as such, customer orders received by an institutional broker would be deemed to be on the Exchange and immediately subject to the Exchange's rules. 144 For example, the proposed rules require that institutional brokers use an electronic system, acceptable to the Exchange, integrating an institutional broker's trading activities in the Matching System, outside of the Matching System, and in other market centers. 145 Additionally, because institutional brokers could execute orders outside of the Matching System but still on the Exchange, the Exchange has proposed rules to govern this activity. 146 First, such transactions would be required be reported to the Exchange within 10 seconds after the trade occurs. Further, the Exchange represents that it has built a functionality to allow an institutional broker to pull up a “validation window” to ensure that a trade being done outside of the Matching System does not violate trade-through provisions. In addition, to help ensure that trades outside of the Matching System are not inconsistent with an institutional broker's fiduciary duties, once an institutional broker pulls up a validation screen, it would be required to complete the transaction and could not cancel out of the functionality, subject to certain limited exceptions. 147 144 *See supra* note 137. 145 *See* proposed CHX Article 17, Rule 3(b). 146 *See supra* notes 68-71 and accompanying text. 147 *See* proposed CHX Article 17, Rule 3, Interpretation and Policy .03. The institutional broker would only be permitted to cancel out of the functionality if the broker mistakenly input the wrong symbol for the security, or the transaction may be cancelled pursuant to CHX Article 20, Rules 9, 10, or 11. The Commission believes that the proposed rules governing institutional brokers should allow the Exchange to monitor appropriately the activities of institutional brokers and to help ensure that they are complying both with the rules of the Exchange and their fiduciary duties. The Commission also believes that the proposed rules will require the Exchange to carefully oversee the activities of institutional brokers, and to detect any potential abuses. Accordingly, the Commission believes that the proposed rules governing institutional brokers are consistent with the Act. E. Regulation NMS The Commission believes that the proposed rule change is consistent with the requirements of Regulation NMS. 148 In proposed Article 20, Rule 6, CHX proposes to adopt a rule with regard to locked and crossed markets, as required by Rule 610(d) of Regulation NMS. 149 The Exchange's proposed rules include marking certain orders meeting the requirements of Rule 600(b)(30) of Regulation NMS 150 as intermarket sweep orders and accepting orders marked as intermarket sweep orders, which would allow orders so designated to be automatically matched and executed without reference to protected quotations at other trading centers. The Commission also believes that CHX's proposed immediate-or-cancel functionality 151 is consistent with Rule 600(b)(3) of Regulation NMS. The Exchange has designed its proposed rules relating to orders types and eligibility 152 and order execution 153 to comply with the requirements of Regulation NMS. As noted above, these proposed rules provide that the Matching System will accept only orders (except for cross orders, as discussed above) that meet the increment requirements of Rule 612 of Regulation NMS (unless and to the extent exempted from Rule 612 by Commission order). 154 148 *See* 17 CFR 242.600 *et seq.* 149 17 CFR 242.610(d). 150 17 CFR 242.600(b)(30). 151 *See* proposed CHX Article 1, Rule 2(m). 152 *See* discussion *supra* Section II.A.1. 153 *See* discussion *supra* Section II.A.3. 154 17 CFR 242.612. In addition, as mentioned above in Section II.A, the Matching System is designed to qualify as an automated trading center under Rule 600(b)(3) of Regulation NMS. 155 To ensure that its systems immediately and automatically process orders, the Exchange has included in its rules a requirement that it use automated systems to send test IOC orders to the Matching System to determine whether it accepts the order automatically. 156 Similarly, the Exchange will also use automated monitoring systems to review, in real time, the Matching System's handling of test IOC orders to determine whether, and within what time frame:

(1)IOC orders are executed against the displayed quote, up to its full size;

(2)any unexecuted portion of the IOC order is cancelled;

(3)a confirmation of the action taken is generated and transmitted from the Matching System to the monitoring system (to serve as a proxy for a transmission to the order-sending firm); and

(4)the Matching System transmits a new bid or offer (as appropriate) to the monitoring system (to serve as a proxy for a transmission to the appropriate securities information processor). 157 The Exchange's rules provide that it would automatically and immediately append a “manual” identifier to the bids and offers it makes publicly available when it has reason to believe that it is not capable of displaying automated quotations. 155 17 CFR 242.600(b)(3). 156 *See* proposed CHX Article 20, Rule 5, Interpretation and Policy .02. 157 *See* proposed Article 20, Rule 5, Interpretation and Policy .02. The Exchange has proposed a rule that renders an inbound round-lot order ineligible for execution on the Exchange if such order would cause an improper trade-through under Rule 611 of Regulation NMS. 158 The Commission also notes that the proposed rules provide procedures that the Exchange will follow to determine whether a trade would create an improper trade-through and how the Exchange will apply various exceptions to Rule 611 of Regulation NMS, including the self-help exception. 159 158 *See* proposed Article 20, Rule 5(a). 159 *See supra* notes 51-53 and accompanying text. F. Other Rule Changes In addition to the rules described in detail above, the proposed rule change would adopt or amend a number of other Exchange rules that address, among other things, hours of trading, trading halts, cancelling transactions, trading permits, sponsored access, limitations of liability, trade execution, Exchange registration, business conduct, fingerprinting, reporting transactions, riskless principal transactions, disciplinary matters and trial proceedings, arbitration, books and records, clearance and settlement, and listing on the exchange. The Commission believes that these rules are appropriate and consistent with the Act, and many are similar to rules previously approved by the Commission at other exchanges. 160 160 In particular, the Commission believes that the proposed changes to the firm's supervision rules are appropriate and consistent with the Act. *See* proposed CHX Article 6, Rule 5. The Commission believes that these rules should help to ensure that participant firms are adequately supervising their registered and associated persons. The Commission also notes that these obligations are similar to those required by other SROs. *See, e.g.* , NASD Rule 3010 and Philadelphia Stock Exchange Rule 748. The Commission believes that the Exchange's proposed interpretation to its trading ahead rule in CHX Article 9, Rule 17, confirming that a participant would be deemed to be holding an unexecuted customer order when that order has been sent to the Matching System but remains unexecuted, 161 is consistent with the Act. The Commission believes that this rule appropriately confirms that a participant will remain the agent for any customer orders that it submits to the Matching System, and as such, will owe fiduciary duties to such customer orders until they are executed. 161 *See* proposed CHX Article 9, Rule 17, Interpretation and Policy .05. The Commission also believes that the proposed interpretation confirming that a participant would not be in violation of CHX Article 9, Rule 17 if it satisfied bids and offers in other markets in accordance with the requirements for a “cross with satisfy order” is consistent with the Act. 162 The Commission notes that the conditions of the cross with size order provide that a participant could only satisfy bids or offers in other markets at a price that is better than the cross price if the cross is for at least 10,000 shares or has a value of at least $200,000 (a “block size order”) or is for the account of an institutional customer and the participant's customer has specifically agreed to that outcome. 163 162 *See* proposed CHX Article 9, Rule 17, Interpretation and Policy .06. 163 *See supra* note 20 (discussing cross with satisfy orders). IV. Accelerated Approval of Amendment No. 2 Under Section 19(b)(2) of the Act, 164 the Commission may not approve any proposed rule change prior to the thirtieth day after the date of publication of notice thereof, unless the Commission finds good cause for so doing. As set forth below, the Commission finds good cause to approve Amendment No. 2 to the proposed rule change prior to the thirtieth day after Amendment No. 2 is published for comment in the **Federal Register** pursuant to Section 19(b)(2) of the Act. 165 164 15 U.S.C. 78s(b)(2). 165 *Id.* The modification made by Amendment No. 2 to require a cross with size to be larger than the aggregate size of all orders in the Matching System at the same price, rather than larger only than the largest individual order, 166 merely retains—for the time being—a condition for cross with size orders that exists in the Exchange's current rules. 167 The new provision to execute various types of cross orders as crosses with size if they qualify as such 168 simply builds in a directive into cross orders generally that enables them to receive a better execution if they meet the relevant requirements. 166 *See supra* note 81. 167 *See* current CHX Article XXA, Rule 2(c)(4). 168 *See supra* note 82. The revision made by Amendment No. 2 regarding cancellation of certain sell short orders improves the proposal by accounting for situations in which an appropriate price cannot be determined for an order of this type. 169 The addition of the “ISO Cross” order type makes explicit that a cross order, like other orders, may be appended with ISO instructions. 170 The revision regarding new display instructions 171 changes only the method by which such an instruction would need to be submitted, but alters no principle of priority included in the original proposal. 169 *See supra* note 83. 170 *See supra* note 84. 171 *See supra* note 86. Amendment No. 2 also improves the proposal by confirming the circumstances in which the Matching System would display quotes that would lock or cross the protected quotes of other markets, 172 and appropriately spells out that the Matching System will trade in increments supported by the ITS or Regulation NMS linkage plan, as may be applicable. 173 Another provision adds clarity to how orders should be identified, according to the proposed rules, when a trade is executed pursuant to both the intermarket sweep order exception of Rule 611(b)(5) or

(6)of Regulation NMS and the self-help exception of Rule 611(b)(1) of Regulation NMS. 174 Other clarifying changes similarly enhance the proposal. 175 172 *See supra* note 87. 173 *See supra* , note 88. 174 *See supra* note 89. 175 *See supra* notes 90-95 and accompanying text. Amendment No. 2 also incorporates a number of added restrictions and requirements for market makers that set forth in more detail the parameters by which market making may take place on the Exchange and should aid in the prevention of abuses. 176 In addition, Amendment No. 2 sets forth provisions requiring the Exchange to maintain internal controls designed to restrict the flow of confidential and proprietary information between the Exchange and the third-party broker-dealer providing connectivity to other markets. The provision added by Amendment No. 2 to permit “qualified contingent trades” to be executed on the Exchange 177 merely assures that market participants would be able to benefit from the Commission's order exempting from Rule 611(a) any trade-throughs caused by such trades. The revisions to the text to reflect and conform to recent changes made as the result of other, recently approved CHX proposals, 178 as well as the technical changes and corrections included in Amendment No. 2, raise no substantive issues. Finally, a number of the changes mirror rules that already have been approved for other exchanges. 176 *See supra* notes 96-97 and accompanying text. 177 *See supra* notes 97-99 and accompanying text. 178 *See supra* note 101. For the above reasons, the Commission believes that the revisions to the proposed rule change made by Amendment No. 2 pose no significant regulatory concerns, and should not delay implementation of the proposal. The Commission also believes that accelerated approval is reasonable because it should help to ensure that the appropriate rules are in place at the Exchange at the time that the CHX's final technical specifications with respect to Regulation NMS must be published. V. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 2, including whether Amendment No. 2 is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-CHX-2006-05 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-CHX-2006-05. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of the filing also will be available for inspection and copying at the principal office of CHX. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CHX-2006-05 and should be submitted on or before October 31, 2006. VI. Conclusion *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 179 that the proposed rule change (File No. SR-CHX-2006-05), as amended by Amendment No. 1, be, and hereby is, approved, and that Amendment No. 2 to the proposed rule change be, and hereby is, approved on an accelerated basis. 179 15 U.S.C. 78s(b)(2). 180 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 180 Nancy M. Morris, Secretary. [FR Doc. E6-16626 Filed 10-6-06; 8:45 am] BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54558; File No. SR-NASD-2006-076] Self-Regulatory Organizations: National Association of Securities Dealers, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change To Exempt All Securities Included in the Nasdaq-100 Index From the Price Test Set Forth in NASD Rule 5100 October 2, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on June 15, 2006, the National Association of Securities Dealers, Inc. (“NASD”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by NASD. On August 18, 2006, NASD filed Amendment No. 1 to the proposed rule change. 3 On September 20, 2006, NASD filed Amendment No. 2 to the proposed rule change, as amended. 4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. In addition, the Commission is granting accelerated approval of the proposed rule change, as amended. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 In Amendment No. 1, which supplemented the original filing, NASD modified the scope of the proposed rule change and made certain technical and clarifying changes following discussions with Commission staff. 4 After discussions with Commission staff, NASD filed Amendment No. 2 to modify its discussion of the purpose of the proposed rule filing and to make other technical and clarifying rule changes. Amendment No. 2 replaced and superseded the original filing in its entirety. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change NASD is proposing to exempt all securities included in the Nasdaq-100 Index from the price test set forth in NASD Rule 5100. Below is the text of the proposed rule change, as amended. Proposed new language is italicized. 5100. Short Sale Rule (a)-(b) No Change.

(c)The provisions of paragraph

(a)shall not apply to: (1)-(9) No Change. *(10) Sales of securities included in the Nasdaq-100 Index.* (d)-(l) No Change. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NASD included statements concerning the purpose of and basis for the proposed rule change, as amended, and discussed any comments it received on the proposed rule change, as amended. The text of these statements may be examined at the places specified in Item III below. NASD has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose

(a)Rule Filing History On June 15, 2006, NASD, through its subsidiary, The Nasdaq Stock Market, Inc. (“Nasdaq”), filed with the Commission proposed rule change SR-NASD-2006-076 which proposed to exempt all securities included in the Nasdaq-100 Index from the price test set forth in NASD Rule 3350(a) (the “Original Proposal”). On June 30, 2006, the Commission approved SR-NASD-2005-087, which amended certain NASD rules to reflect the separation of Nasdaq from NASD upon the operation of Nasdaq as a national securities exchange. 5 Among other amendments, SR-NASD-2005-087 amended Rule 3350 to renumber it as Rule 5100 and apply it uniformly to short sales of over-the-counter (“OTC”) transactions reported to the Alternative Display Facility (“ADF”) or the Trade Reporting Facility (“TRF”). SR-NASD-2005-087 became effective on August 1, 2006, the date upon which Nasdaq began operation as an exchange for Nasdaq-listed securities. 5 *See* Securities Exchange Act Release No. 54085 (June 30, 2006), 71 FR 38910 (July 10, 2006). Given the Commission's approval of SR-NASD-2005-087, NASD assumed direct responsibility for all rulemaking functions related to Rule 5100 (formerly Rule 3350). As such, NASD filed Amendment No. 1 to SR-NASD-2006-076, which amended the Original Proposal to reflect the renumbering of Rule 3350 as Rule 5100 in the proposed rule text, among other technical and clarifying changes. NASD filed Amendment No. 2 to SR-NASD-2006-076 to revise the basis upon which NASD is filing the proposed rule change herein and to make additional technical and clarifying changes.

(b)Rationale Rule 5100 provides that, with respect to trades reported to the ADF or the TRF no member shall effect a short sale in a National Global Market (“NGM”) security otherwise than on an exchange at or below the current national best (inside) bid when the current national best (inside) bid is below the preceding national best (inside) bid. 6 NASD states that the price test contained in Rule 5100 is designed to prevent the market price of NGM securities from being manipulated downward by unrestricted short selling. In addition, NASD notes that all short sales in NGM securities effected otherwise than on an exchange must comply with Rule 5100 or qualify for an exception to, or exemption from, the rule. 6 NASD recently amended Rule 5100 to allow members to use, for a transitional period ending on November 3, 2006, the Nasdaq Exchange best (inside) bid rather than the national best (inside) bid for the purposes of the application of the rule. *See* Exchange Act Release No. 54203 (July 25, 2006), 71 FR 43256 (July 31, 2006) (SR-NASD-2006-089). On August 21, 2006, The NASDAQ Stock Market LLC (“Nasdaq Exchange”) filed proposed rule change SR-NASDAQ-2006-031 to exempt all securities included in the Nasdaq-100 Index from Nasdaq Exchange Rule 3350, which governs short sales in NGM securities executed on or reported to the Nasdaq Exchange. 7 NASD states that NASD is filing the proposed rule change, as amended, to create a similar exemption from Rule 5100 for securities included in the Nasdaq-100 Index. NASD believes that, with respect to securities included in the Nasdaq-100 Index, short sales in NGM securities executed otherwise than on an exchange should be subject to the same exemption as short sales in NGM securities executed on or reported to the Nasdaq Exchange. Accordingly, NASD states that it is filing the proposed rule change, as amended, to amend Rule 5100 to create an exemption for all securities included in the Nasdaq-100 Index, consistent with the approved exemption in SR-NASDAQ-2006-031 for short sales in NGM securities executed on or reported to the Nasdaq Exchange. 7 The SEC approved SR-NASDAQ-2006-031 on September 13, 2006. *See* Securities Exchange Act Release No. 54435 (September 13, 2006), 71 FR 55042 (September 20, 2006). The effective date of the proposed rule change, as amended, will be announced in a *Notice to Members* . 2. Statutory Basis NASD believes that the proposed rule change, as amended, is consistent with the provisions of Section 15A(b)(6) of the Act, 8 which requires, among other things, that NASD rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. NASD believes that the proposed rule change, as amended, will provide a uniform exemption for NGM securities included in the Nasdaq-100 Index, consistent with the changes in SR-NASDAQ-2006-031. 8 15 U.S.C. 78o-3(b)(6). B. Self-Regulatory Organization's Statement on Burden on Competition NASD does not believe that the proposed rule change, as amended, will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments on the Original Proposal were solicited by the Commission. 9 As noted above, the Original Proposal was a substantially similar rule filing to the proposed rule change, as amended, that proposed to exempt all securities in the Nasdaq-100 Index from the price test in former NASD Rule 3350. The Original Proposal was filed by Nasdaq when it was a subsidiary of NASD and prior to Nasdaq commencing operations as a national securities exchange. 10 The Commission did not receive any comment letters in response to the **Federal Register** publication of the Original Proposal. 9 *See* Exchange Act Release No. 54010 (June 16, 2006), 71 FR 35964 (June 22, 2006). 10 *See supra* note 5. III. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-NASD-2006-076 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NASD-2006-076. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change, as amended, that are filed with the Commission, and all written communications relating to the proposed rule change, as amended, between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of NASD. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASD-2006-076 and should be submitted on or before October 31, 2006. IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change After careful consideration, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association 11 and, in particular, the requirements of Section 15A of the Act 12 and the rules and regulations thereunder. The Commission finds specifically that the proposed rule change, as amended, is consistent with Sections 15A(b)(6) and 15A(b)(9) of the Act 13 in that it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest; and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers, or to regulate by virtue of any authority conferred by the Act matters not related to the purposes of the Act or the administration of the exchange. 11 In approving this proposed rule change, as amended, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 12 15 U.S.C. 78o-3. 13 15 U.S.C. 78o-3(b)(6) and (9). NASD Rule 5100 provides that, with respect to trades reported to the ADF or the TRF, no member shall effect a short sale in a NGM security otherwise than on an exchange at or below the current national best (inside) bid when the current national best (inside) bid is below the preceding national best (inside) bid. NASD Rule 5100 is inapplicable to National Capital Market securities. The proposed rule change, as amended, amends NASD Rule 5100 to exempt from its price test securities included in the Nasdaq-100 Index. The Commission is currently conducting the Pilot to study and evaluate the overall effectiveness and necessity of short sale prices tests. 14 On April 20, 2006, we extended the Pilot in order to maintain the status quo for price tests of Pilot securities while we complete our analysis of the results of the Pilot and conduct any additional rulemaking that we determine may be warranted. 15 We have not reached any conclusions regarding price tests. However, we believe that this proposed rule change is consistent with the statute. 14 *See* Securities Exchange Act Release No. 50104 (July 28, 2004), 69 FR 48032 (August 6, 2004) (“First Pilot Order”). The Pilot suspended price tests for the following:

(1)Short sales in the securities identified in Appendix A to the First Pilot Order;

(2)short sales in the securities included in the Russell 1000 index effected between 4:15 p.m. EST and the open of the effective transaction reporting plan of the Consolidated Tape Association (“consolidated tape”) on the following day; and

(3)short sales in any security not included in paragraphs

(1)and

(2)effected in the period between the close of the consolidated tape and the open of the consolidated tape on the following day. 15 *See* Order Extending Term of Short Sale Pilot, Release No. 34-53684 (April 20, 2006), 71 FR 24765 (April 26, 2006). Currently, securities in the Nasdaq-100 Index are subject to a price test only if they are traded OTC and reported to a NASD facility. NASD's proposed rule change, as amended, would provide a uniform exemption for securities included in the Nasdaq-100 Index so that such securities would not be subject to a price test in any market. NASD has requested that the Commission find good cause for approving the proposed rule change prior to the 30th day after publication of notice thereof in the **Federal Register** . The Commission notes that it previously solicited comments on the Original Proposal, a substantially similar proposal to the proposed rule change. The Original Proposal would have exempted all securities included in the Nasdaq-100 Index from the price test in former NASD Rule 3350. The Original Proposal was published for comment in the **Federal Register** on June 22, 2006. The Commission received no comments on the Original Proposal. Accordingly, the Commission finds good cause exists, consistent with Sections 15(A)(b)(6) and 19(b)(2) of the Act, 16 to approve the proposed rule change, as amended, on an accelerated basis, prior to the 30th day after the date of publication of the notice of filing thereof in the **Federal Register** 16 15 U.S.C. 78 *o* -3(b)(6); 15 U.S.C. 78s(b)(2). V. Conclusion *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act that the proposed rule change (SR-NASDAQ-2006-076), as amended, is approved on an accelerated basis. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 17 17 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-16644 Filed 10-6-06; 8:45 am] BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54541; File No. SR-NYSEArca-2006-66] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Exercise Deadline for Quarterly Options Series September 29, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on September 25, 2006, NYSE Arca, Inc. (“NYSE Arca”or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by the Exchange. The Commission has designated this proposed rule change as non-controversial under Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b-4(f)(6) thereunder, 4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend NYSE Arca Rule 6.24(c) by adding a provision regarding the exercise cut-off time for Quarterly Option Series. The text of the proposed rule change, as amended, is set forth below. Proposed new language is in *italics.* Rules of NYSE Arca, Inc. Rule 6 Option Contracts Traded on the Exchange Rule 6.24. Exercise of Option Contracts (a)-(b)—No change.

(c)Exercise cut-off time. Option holders have until 2:30 p.m.

(PST)on the business day immediately prior to the expiration date *or, in the case of Quarterly Options Series, on the expiration date,* to make a final decision to exercise or not exercise an expiring option. For customer accounts, OTP Holders and OTP Firms may not accept exercise instructions after 2:30 p.m.

(PST)but have until 3:30 p.m.

(PST)to submit a Contrary Exercise Advice. For non-customer accounts, OTP Holders and OTP Firms may not accept exercise instructions after 2:30 p.m.

(PST)but have until 3:30 p.m.

(PST)to submit a Contrary Exercise Advice if such OTP Holders and OTP Firms employs an electronic submission procedure with time stamp for the submission of exercise instructions by option holders. Consistent with Commentary .04, OTP Holders and OTP Firms are required to submit a Contrary Exercise Advice by 2:30 p.m.

(PST)for non-customer accounts if such OTP Holders and OTP Firms do not employ an electronic submission procedure with time stamp for the submission of exercise instructions by option holders. (d)-(g)—No change. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend its rule to add a provision to Rule 6.24(c) addressing the exercise cut-off time for Quarterly Option Series. Presently, option holders have until 2:30 p.m. (Pacific Time) on the business day immediately prior to the expiration date to make a decision to exercise or not to exercise an expiring option (standard equity and index options). Standard listed options expire on the third Saturday of a month. Option holders make their decision whether or not to exercise based on the closing price of the underlying security on the last trading day of any given option series' cycle, typically the Friday immediately before the expiration Saturday. Unlike standard listed options, Quarterly Option Series expire on the last business day of a calendar quarter. If an option holder were to be required to make a decision to exercise or not exercise a Quarterly Option Series on the day before the expiration of the option, they would have to make that decision without the knowledge of what the closing price of the underlying security would be on expiration. The Exchange is now proposing to add a provision to NSYE Arca Rule 6.24(c) that will designate a new exercise cut-off time for Quarterly Options Series. The new proposed time will be 2:30 p.m. (Pacific Time) on the day that the quarterly option expires. This change will allow option holders the full time needed to make an accurate decision whether or not to an exercise an expiring option. 2. Statutory Basis The Exchange believes that the proposed rule is consistent with Section 6(b) of the Act 5 in general, and Section 6(b)(5) of the Act, 6 that the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and practices, and, in general, to protect investors and the public interest. 5 15 U.S.C. 78f(b). 6 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes that the proposed rule change will not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 7 and subparagraph (f)(6) of Rule 19b-4 thereunder. 8 Because the foregoing proposed rule change

(i)Does not significantly affect the protection of investors or the public interest;

(ii)does not impose any significant burden on competition; and

(iii)the proposed rule change does not become operative for 30 days after the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder. 9 7 15 U.S.C. 78s(b)(3)(A). 8 17 CFR 240.19b-4(f)(6). 9 Rule 19b-4(f)(6)(iii) requires the Exchange to give written notice to the Commission of its intent to file the proposed rule change five business days prior to filing. The Commission has determined to waive the five-day pre-filing requirement for this proposal. A proposed rule change filed under Rule 19b-4(f)(6) normally does not become operative for 30 days after the date of filing. However, Rule 19b-4(f)(6)(iii) permits the Commission to waive the operative delay if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the operative delay to permit the proposed rule change to become effective prior to the 30th day after filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. Waiving the operative delay will allow the Exchange to permit exercise of a Quarterly Options Series at any time until the close of business on its expiration date starting with the third quarter 2006 expirations on Friday, September 29, 2006, and consequently will benefit investors. Therefore the Commission has determined to waive the 30-day delay and allow the proposed rule change to become operative immediately. 10 10 For purposes only of waiving the operative delay of this proposal, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). At any time within sixty

(i)the section 31 fee rate multiplied by

(ii)the member's aggregate dollar amount of covered sales. *See* Securities Exchange Act Release No. 53088 (January 6, 2006), 71 FR 2286 (January 13, 2006) (SR-Phlx-2005-87). 6 The NASD has not joined the NMS Linkage Plan and will maintain linkage for its ADF participants through ITS. 7 Phlx, along with the other exchanges, intends to file a separate proposed rule change that will allow it to charge and be charged fees, including Phlx's Covered Sale Fee, for transactions that result from orders sent over the NMS Linkage Plan. *See e.g.* , Securities Exchange Act Release No. 54480 (September 21, 2006), 71 FR 57596 (September 29, 2006) (SR-NYSE-2006-72). In addition, Phlx intends to make arrangements with ADF participants to charge and be charged fees, including Phlx's Covered Sale Fee, for transactions that result from orders sent over ITS because the NASD will not be joining the NMS Linkage Plan and will not be collecting or paying these fees on behalf of the ADF participants. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with section 6(b) of the Act 8 in general, and furthers the objective of sections 6(b)(4) and 6(b)(5) of the Act 9 in particular, in that it is an equitable allocation of reasonable fees among Exchange members and issuers and other persons using its facilities, designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest, by creating a mechanism for charging the Covered Sale Fee for transactions over the NMS Linkage Plan. 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(4) and (b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were solicited or received with respect to the proposed rule change. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-Phlx-2006-60 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-Phlx-2006-60. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2006-60 and should be submitted on or before October 31, 2006. IV. Commission's Findings and Order Granting Accelerated Approval of a Proposed Rule Change and Amendment No.1 Thereto The Commission finds that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange. 10 In particular, the Commission believes that the proposal is consistent with sections 6(b)(4) of the Act, which requires that the rules of an exchange provide for the equitable allocation of reasonable dues, fees, and other charges among Exchange members and issuers and other persons using its facilities. 10 In approving this proposal, as amended, the Commission has considered its impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). National securities exchanges obtain funds to pay their section 31 fees to the Commission by charging fees to broker-dealers who generate the covered sales on which section 31 fees are based. An exchange can obtain most of these funds by imposing a fee on one of its members whenever the member is on the sell side of a transaction. However, when the exchange accepts an ITS commitment to buy, the ultimate seller is a party on another market. The exchange lacks the ability to pass a fee to that seller directly, because the seller may not be a member of the exchange. The Commission previously approved an arrangement whereby Phlx collects fees from broker-dealers that place sell orders routed away over ITS, 11 then charges fees to or accepts fees from each other ITS participant exchange, depending on whether it is a net sender or net receiver of executed ITS sell orders with respect to that other exchange. The Commission believes that the current proposal, to continue this practice under the NMS Linkage Plan, is a reasonable means for Phlx to obtain funds to pay its section 31 fees on covered sales resulting from NMS Linkage Plan trades and is consistent with the Act. 11 *See* Securities Exchange Act Release No. 52745 (November 7, 2005), 70 FR 69182 (November 14, 2005). Under section 19(b)(2) of the Act, 12 the Commission may not approve any proposed rule change prior to the thirtieth day after the date of publication of the notice of filing thereof, unless the Commission finds good cause for so doing. Granting accelerated approval will permit the Exchange to charge the Covered Sale Fee to members and member organizations engaged in executing sale transactions on another exchange through the NMS Linkage Plan at the start of that plan's operation. Moreover, approving this proposal will enable Phlx to charge fees to or accept fees from an ADF participant that is not a member of the Exchange, depending on the net amount of sales between them conducted through ITS. The Commission expects that a non-member ADF participant will not be charged a fee unless it has entered into an agreement with the Exchange subjecting it to such an arrangement. Therefore, the Commission finds good cause for approving the proposed rule change prior to the thirtieth day after publishing notice of filing thereof in the **Federal Register** . The Commission believes that such action is consistent with the protection of investors and the public interest. 12 15 U.S.C. 78s(b)(2). V. Conclusion *It is therefore ordered* , pursuant to section 19(b)(2) of the Act, 13 that the proposed rule change (SR-Phlx-2006-60) is hereby approved on an accelerated basis. 13 *Id.* For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 14 14 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-16631 Filed 10-6-06; 8:45 am] BILLING CODE 8010-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration # 10626 and # 10627] New Mexico Disaster # NM-00002 AGENCY: U.S. Small Business Administration. ACTION: Notice. SUMMARY: This is a notice of an Administrative declaration of a disaster for the State of New Mexico dated 09/29/2006. *Incident:* Otero County Flash Flood. *Incident Period:* 06/22/2006. *Effective Date:* 09/29/2006. *Physical Loan Application Deadline Date:* 11/28/2006. *Economic Injury

(EIDL)Loan Application Deadline Date:* 06/29/2007. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator's disaster declaration, applications for disaster loans may be filed at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Primary Counties: Otero Contiguous Counties: New Mexico: Chaves, Dona Ana, Eddy, Lincoln, Sierra Texas: Culberson, El Paso, Hudspeth The Interest Rates are: Percent Homeowners With Credit Available Elsewhere 5.875 Homeowners Without Credit Available Elsewhere 2.937 Businesses With Credit Available Elsewhere 7.763 Businesses & Small Agricultural Cooperatives Without Credit Available Elsewhere 4.000 Other (Including Non-Profit Organizations) With Credit Available Elsewhere 5.000 Businesses and Non-Profit Organizations Without Credit Available Elsewhere 4.000 The number assigned to this disaster for physical damage is 10626 6 and for economic injury is 10627 0. The States which received an EIDL Declaration # are New Mexico and Texas. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008). Dated: September 29, 2006. Steven C. Preston, Administrator. [FR Doc. E6-16627 Filed 10-6-06; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #10519 and #10520] New York Disaster Number NY-00022 AGENCY: U.S. Small Business Administration. ACTION: Amendment 3. SUMMARY: This is an amendment of the Presidential declaration of a major disaster for the State of New York (FEMA-1650-DR), dated 07/03/2006. *Incident:* Severe Storms and Flooding. *Incident Period:* 06/26/2006 through 07/10/2006. *Effective Date:* 10/02/2006. *Physical Loan Application Deadline Date:* 10/16/2006. *EIDL Loan Application Deadline Date:* 04/03/2007. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, National Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: The notice of the President's major disaster declaration for the State of New York, dated 07/03/2006, is hereby amended to extend the deadline for filing applications for physical damages as a result of this disaster to 10/16/2006. All other information in the original declaration remains unchanged. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) Herbert L. Mitchell, Associate Administrator for Disaster Assistance. [FR Doc. E6-16632 Filed 10-6-06; 8:45 am] BILLING CODE 8025-01-P DEPARTMENT OF STATE [Public Notice #5564] Notice of Meeting—United States International Telecommunication Advisory Committee The Department of State announces a meeting of the ITAC. The purpose of the Committee is to advise the Department on matters related to telecommunication and information policy matters in preparation for international meetings pertaining to telecommunication and information issues. The ITAC will meet to discuss the matters related to the meeting of the ITU Radiocommunication Sector's Conference Preparatory Meeting

(CPM)for the 2007 World Radiocommunication Conference. The CPM will take place 19 February-2 March 2007 in Geneva, Switzerland. ITAC meetings will be convened on 3 November from 9:30 to 11:30 a.m. and on 14 November and 6 December from 2 to 4 p.m. at the Boeing Company, 1200 Wilson Blvd., Arlington, VA. That is one-half block from the Rosslyn Metrorail station on the Orange and Blue lines. Members of the public will be admitted to the extent that seating is available and may join in the discussions subject to the instructions of the Chair. Entrance to 1200 Wilson Blvd. is controlled. Persons planning to attend the meeting should arrive early enough to complete the entry procedure. One of the following current photo identifications must be presented to gain entrance to 1200 Wilson Blvd.: U.S. driver's license with your photo on it, U.S. passport, or U.S. Government identification. Foreign Nationals are required to pre-clear 24 hours in advance by contacting Keisha Findley at *keisha.m.findley@boeing.com* or 703-465-3680. Dated: October 2, 2006. Douglas R. Spalt, International Communications and Information Policy, U.S. Department of State. [FR Doc. E6-16655 Filed 10-6-06; 8:45 am] BILLING CODE 4710-45-P DEPARTMENT OF TRANSPORTATION Federal Railroad Administration Petition for Waiver of Compliance In accordance with Part 211 of Title 49 Code of Federal Regulations (CFR), notice is hereby given that the Federal Railroad Administration

(FRA)has received a request for a waiver of compliance with certain requirements of its safety standards. The individual petition is described below, including the party seeking relief, the regulatory provisions involved, the nature of the relief being requested, and the petitioner's arguments in favor of relief. Chesapeake and Indiana Railroad Company [Waiver Docket Number FRA-2006-25793] The Chesapeake and Indiana Railroad Company

(CKIN)seeks a permanent waiver of compliance from Control of Alcohol and Drug Use, 49 CFR Part 219 Subparts D through J, which requires a railroad to conduct reasonable suspicion alcohol and/or drug testing, pre-employment drug testing, random alcohol and drug testing, and to have voluntary referral and coworker report policies, and which also specify drug and alcohol testing procedures and record-keeping requirements. CKIN has less than 16 hours of service employees and previously had no joint operations until the Hoosier Valley Railroad Museum

(HVRM)recently began operation of tourist trains on 5 to 10 miles of the 33 miles of track owned by the Incorporated Town of North Judson, Indiana, between North Judson and LaCrosse, Indiana. CKIN conducts freight operations on 23 miles of this 33-mile rail line; however, the only common track use would be a wye track in LaCrosse. HVRM's tourist train operations are normally conducted on weekends and do not operate at the same time as the CKIN freight trains. Interested parties are invited to participate in these proceedings by submitting written views, data, or comments. FRA does not anticipate scheduling a public hearing in connection with these proceedings since the facts do not appear to warrant a hearing. If any interested party desires an opportunity for oral comment, they should notify FRA, in writing, before the end of the comment period and specify the basis for their request. All communications concerning these proceedings should identify the appropriate docket number ( *e.g.* , Waiver Petition Docket Number FRA-2006-25793) and must be submitted to the Docket Clerk, DOT Central Docket Management Facility, Room PL-401, 400 7th Street, SW., Washington, DC 20590-0001. Communications received within 45 days of the date of this notice will be considered by FRA before final action is taken. Comments received after that date will be considered as far as practicable. All written communications concerning these proceedings are available for examination during regular business hours (9 a.m.-5 p.m.) at the above facility. All documents in the public docket are also available for inspection and copying on the Internet at the docket facility's Web site at *http://dms.dot.gov.* FRA wishes to inform all potential commenters that anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit *http://dms.dot.gov.* Issued in Washington, DC on October 4, 2006. Grady C. Cothen, Jr., Deputy Associate Administrator, for Safety Standards and Program Development. [FR Doc. E6-16695 Filed 10-6-06; 8:45 am] BILLING CODE 4910-06-P DEPARTMENT OF TRANSPORTATION Federal Railroad Administration Petition for Waiver of Compliance In accordance with Part 211 of Title 49 Code of Federal Regulations (CFR), notice is hereby given that the Federal Railroad Administration

(FRA)received a request for a waiver of compliance with certain requirements of its safety standards. The individual petition is described below, including the party seeking relief, the regulatory provisions involved, the nature of the relief being requested, and the petitioner's arguments in favor of relief. Southeastern Pennsylvania Transportation Authority [Waiver Petition Docket Number FRA-2005-22688] Southeastern Pennsylvania Transportation Authority (SEPTA) seeks a waiver of compliance with 49 CFR 229.27(d)(2) (locomotive safety standards), which requires locomotives that are equipped with a self-monitoring event recorder to undergo further maintenance and testing if a “download of the event recorder, taken within the preceding 30 days and reviewed for the previous 48 hours of locomotive operation, reveals a failure to record a regularly recurring data element or reveals that any required data element is not representative of the actual operations of the locomotive during this time period.” Specifically, 49 CFR 229.27(d)(2) provides that, “[i]f the review is not successful, further maintenance and testing shall be performed until a subsequent test is successful. When a successful test is accomplished, a record, in any medium, shall be made of that fact and of any maintenance work necessary to achieve the successful result. This record shall be kept at the location where the locomotive is maintained until a record of a subsequent successful test is filed. The download shall be taken from information stored in the certified crash-worthy crash-hardened event recorder memory module if the locomotive is so equipped.” SEPTA operates a fleet of MU passenger locomotives that have an event recorder incorporated within the cab signal system. The event recorder incorporates a software self-test every 250 milliseconds whenever the system is energized. If any event recorder input fails, a fault is declared, which causes a penalty brake application, and the fault is logged. SEPTA believes that the system has proved reliable with no data lost over the previous 10 years. SEPTA requests that they be allowed to continue this practice of checking fault indications at the time of periodic inspections, and if the waiver is granted, that they perform no annual downloads of their event recorders. Interested parties are invited to participate in these proceedings by submitting written views, data, or comments. FRA does not anticipate scheduling a public hearing in connection with these proceedings since the facts do not appear to warrant a hearing. If any interested party desires an opportunity for oral comment, they should notify FRA, in writing, before the end of the comment period and specify the basis for their request. All communications concerning these proceedings should identify the appropriate docket number (FRA-2005-22688) and must be submitted to the Docket Clerk, DOT Docket Management Facility, Room PL-401 (Plaza Level), 400 7th Street, SW., Washington, DC 20590. Communications received within 45 days of the date of this notice will be considered by FRA before final action is taken. Comments received after that date will be considered as far as practicable. All written communications concerning these proceedings are available for examination during regular business hours (9 a.m.-5 p.m.) at the above facility. All documents in the public docket are also available for inspection and copying on the Internet at the docket facility's Web site at *http://dms.dot.gov.* Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78). The Statement may also be found at *http://dms.dot.gov.* Issued in Washington, DC, on October 4, 2006. Grady C. Cothen, Jr., Deputy Associate Administrator, for Safety Standards and Program Development. [FR Doc. E6-16696 Filed 10-6-06; 8:45 am] BILLING CODE 4910-06-P DEPARTMENT OF TRANSPORTATION Federal Railroad Administration Notification of Extension of Comment Period In accordance with Part 211 of Title 49 of the Code of Federal Regulations (CFR), the Federal Railroad Administration

(FRA)gave notice that it had received a request of approval for a waiver by the Union Pacific Railroad (UP). UP is implementing remote authority technology, designed to permit authorized users in the field to request, be granted, or release on-track authority without train dispatcher interaction. To facilitate the implementation of this technology, UP is requesting that FRA suspend compliance with certain rules in accordance with the provisions contained in 49 CFR 211.51. FRA placed the supporting documentation under docket number FRA-2006-24840. FRA also gave notice that it would accept comments on the petition for 45 days subsequent to the publication of the notice. The comment period ended on September 10, 2006, and FRA is reopening the docket for comments to allow the public time to analyze and comment on additional documentation submitted by UP. All communications concerning this proceeding should identify the appropriate docket number (FRA-2006-24840) and may be submitted by any of the following methods: • *Web site: http://dms.dot.gov* . Follow the instructions for submitting comments on the DOT electronic docket site. • *Fax:* 202-493-2251 • *Mail:* Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC 20590-001. • *Hand Delivery:* Docket Management Facility, Room PL-401 on the Plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal Holidays. Communications received within 90 days of the date of this notice will be considered by FRA before final action is taken. Comments received after that date will be considered as far as practicable. All written communications concerning these proceedings are available for examination during regular business hours (9 a.m.-5 p.m.) at the above facility. All documents in the public docket are also available for inspection and copying on the Internet at the docket facility's Web site at *http://dms.dot.gov* . Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000, (Volume 65, Number 70; Pages 19477-78). The statement may also be found at *http://dms.dot.gov* . Issued in Washington, DC, on October 4, 2006. Grady C. Cothen, Jr., Deputy Associate Administrator, for Safety Standards and Program Development. [FR Doc. E6-16708 Filed 10-6-06; 8:45 am] BILLING CODE 4910-06-P DEPARTMENT OF TRANSPORTATION National Highway Traffic Safety Administration [Docket No. NHTSA-2003-14395, Notice 3] NHTSA's Activities Under the United Nations Economic Commission for Europe 1998 Global Agreement AGENCY: National Highway Traffic Safety Administration (NHTSA), DoT. ACTION: Notice of activities under the 1998 Global Agreement and request for comments. SUMMARY: NHTSA is publishing this notice to inform the public of the schedule of upcoming meetings of the World Forum for Harmonization of Vehicle Regulations (WP.29) and its working parties of experts for the remainder of calendar year 2006 and the tentative schedule for calendar year 2007. Further, this notice informs the public about the status of activities under the Program of Work of the 1998 Global Agreement and requests comments on various aspects of these activities. Specifically, this notice seeks comment on the recommended Global Technical Regulation

(GTR)on motorcycle brake systems that was referred by the Working Party on Brakes and Running Gear

(GRRF)to the Executive Committee of the 1998 Global Agreement (AC.3) for a vote at the 140th session of WP.29 in November 2006. Publication of this information is in accordance with NHTSA's Statement of Policy regarding Agency Policy Goals and Public Participation in the Implementation of the 1998 Global Agreement on Global Technical Regulations. DATES: Written comments may be submitted to this agency and must be received within 30 days of publication of this notice. ADDRESSES: You may submit your comments in writing to: Docket Management, Room PL-401, 400 Seventh Street, SW., Washington, DC 20590. Alternatively, you may submit your comments electronically by logging onto the Dockets Management System Web site at *http://dms.dot.gov* . Click on “Help & Information” or “Help/Info” to view instructions for filing your comments electronically. Regardless of how you submit your comments, you should mention the docket number of this document. Note that all comments received will be posted without change to *http://dms.dot.gov* , including any personal information provided. Please see the Privacy Act heading under Request for Comments. FOR FURTHER INFORMATION CONTACT: Mr. Ezana Wondimneh, Division Chief, International Policy and Harmonization (NVS-133), National Highway Traffic Safety Administration, 400 Seventh Street, SW., Washington, DC 20590; phone number

(202)366-0846, fax number

(202)493-2290. SUPPLEMENTARY INFORMATION: Table of Contents I. Background II. List of meetings of WP.29 and its working parties of experts III. Status of activities under the Program of Work of the 1998 Global Agreement a. Status of Established GTRs under the 1998 Global Agreement b. Formal proposals for the development of GTRs submitted by contracting parties based on the Program of Work c. Status of proposed GTRs under the 1998 Global Agreement 1. Motorcycle Brake Systems 2. Installation of Light and Light-Signaling Devices 3. Safety Glazing 4. Pedestrian Safety 5. Head Restraints 6. Other GTRs d. Specific Resolutions under the 1998 Agreement e. Compendium of Candidate GTRs IV. Request for Comments V. Privacy Act I. Background On August 23, 2000, NHTSA published in the **Federal Register** (65 FR 51236) a statement of policy regarding the agency's policy goals and public participation in the implementation of the 1998 Global Agreement, indicating that each calendar year the agency would provide a list of scheduled meetings of the World Forum for Harmonization of Vehicle Regulations (WP.29) and the working parties of experts, as well as meetings of the Executive Committee of the 1998 Global Agreement (AC.3). Further, in that policy statement, the agency stated that it would keep the public informed about a program of work under the Agreement (i.e., agreed subjects for which Global Technical Regulations [GTR] should be developed) as well as a list of candidate GTRs that have been formally proposed by a contracting party and referred to a working party of experts, including draft GTRs that have been developed and referred by a working party of experts to AC.3 for establishment under the Agreement. Through a series of **Federal Register** notices published between July 2000 and October 2004 (65 FR 44565), (66 FR 4893), (68 FR 5333) (69 FR 60460), the agency notified the public about status of activities under the 1998 Global Agreement and sought comments on various issues and proposals. In the most recent notice (69 FR 60460), the agency discussed the status of activities under the Program of Work for the 1998 Global Agreement, which was formally adopted by WP.29 at its March 2002 Session, made available and sought comment on formal proposals for GTRs submitted by contracting parties as well as recommended GTRs. II. List of Meetings of WP.29 and Its Working Parties of Experts The following lists contain meetings of WP.29 and its working parties of experts for the remainder of calendar year 2006 and for calendar year 2007. The meeting dates for 2007 are subject to confirmation by the Inland Transport Committee of the United Nations Economic Commission for Europe. 1 However, the agency does not anticipate any changes to the schedule. In addition, working parties of experts may schedule, if necessary, informal meetings in addition to their regularly scheduled ones in order to address technical matters specific to GTRs under consideration. The formation of these groups, and their timing, are recommended by the sponsor and chair of the group and are agreed to by WP.29 and AC.3. The schedule and place of meetings are made available to interested parties in proposals and periodic reports which are posted on the Web site of WP.29. 1 The Inland Transport Committee provides a forum for its member Governments for

(i)Cooperation and consultation based on the exchange of information and experiences,

(ii)the analysis of transport trends and economics and transport policy trends, and

(iii)coordinated action designed to achieve an efficient, coherent, balanced and flexible transport system in the ECE region which is based on principles of market economy, pursues the objectives of safety, environmental protection and energy efficiency in transport and takes into account transport developments and policy of member Governments; WP.29 Reports to this Committee. Schedule of Meetings of WP.29 and Its Working Parties of Experts 2006 October 2-6 Working Party on Lighting and Light Signaling

(GRE)(57th session) 17-20 Working Party on General Safety Provisions

(GRSG)(91st session) November 13 Administrative Committee for the Coordination of Work (WP.2/AC.2) (92nd session) 14-17 World Forum for Harmonization of Vehicle Regulations (WP.29) (140th session) and Administrative Committee of the 1958 Agreement (AC.1) (34th session) and Executive Committee of the 1998 Global Agreement (AC.3)(18th session). December 12-15 Working Party on Passive Safety

(GRSP)(40th session) Provisional Schedule of meetings of WP.29 and its working parties of experts 2007 January 9-12 Working Party on Pollution and Energy

(GRPE)(53rd session) Feb 5-9 Working Party on Brakes and Running Gear

(GRRF)(61st session) March 12 Administrative Committee for the Coordination of Work (WP.29/AC.2) (93rd session) 13-16 World Forum for Harmonization of Vehicle Regulations (WP.29) (141st session) and Administrative Committee of the 1958 Agreement (AC.1) (35th session) and Executive Committee of the 1998 Global Agreement (AC.3) (19th session). 26-30 Working Party on Lighting and Light Signaling

(GRE)(58th session) April 30-4

(May)Working Party on General Safety Provisions

(GRSG)(92nd session) May 7-11 Working Party on Passive Safety

(GRSP)(41st session) June 5-8 Working Party on Pollution and Energy

(GRPE)(54th session) 25 Administrative Committee for the Coordination of Work (WP.29/AC.2) (94th session) 26-29 World Forum for Harmonization of Vehicle Regulations (WP.29) (142nd session) and Administrative Committee of the 1958 Agreement (AC.1) (36th session) and Executive Committee of the 1998 Global Agreement (AC.3) (20th session). September 18-21 Working Party on Brakes and Running Gear

(GRRF)(62nd session) October 1-4 Working Party on Lighting and Light Signaling

(GRE)(59th session) 23-26 Working Party on General Safety Provisions

(GRSG)(93rd session) November 12 Administrative Committee for the Coordination of Work (WP.2/AC.2) (95th session) 13-16 World Forum for Harmonization of Vehicle Regulations (WP.29) (143rd session) and Administrative Committee of the 1958 Agreement (AC.1) (37th session) and Executive Committee of the 1998 Global Agreement (AC.3) (21st session). December 11-14 Working Party on Passive Safety

(GRSP)(42nd session) III. Status of Activities Under the Program of Work of the 1998 Global Agreement In March 2001, NHTSA submitted to WP.29 and AC.3 its final recommendations for the first motor vehicle safety GTRs to be considered for establishment under that Agreement. The Administrative Committee for the Coordination of Work of WP.29 (AC.2) reviewed the recommendations made by various contracting parties, including the United States, Canada, the European Union, Japan, and Russia, as well as those made by other interested parties and reached agreement on a Program of Work, taking into account the workload of the working parties of experts under WP.29. AC.2 then submitted the Program of Work to AC.3. AC.3 approved the Program of Work and requested that contracting parties volunteer to sponsor each listed regulation by submitting a formal proposal as required by Article 6 of the 1998 Global Agreement. WP.29 formally adopted the Program of Work at its session in March 2002. Subsequently, several contracting parties stepped forward to sponsor each of the items in the Program of Work. Progress has been made in several areas, and the Program of Work has been updated accordingly. The first GTR, on door locks and door retention components, and the second GTR, on motor cycle emission measurement procedures 2 , have been established. The status of hydrogen fuel cell vehicles as well as tire performance has been upgraded from an area for an exchange of information to an area for active development as a GTR. Information exchange in the area of field of vision has been replaced with information exchange on electronic stability control (ESC). Due to difficulties in achieving consensus to establish a GTR on Lower Anchorages and Tethers for Child Safety Seats, it was decided at the March 2006 WP.29 session to remove the item from the Program of Work. 2 This GTR will not be discussed in detail in this notice as the Environmental Protection Agency is the lead agency on this issue. The following table contains an updated list of subjects and sponsoring contracting parties. In addition to the list below, the contracting parties will continue to exchange information in the following areas: Electronic stability control (GRRF); side-impact and vehicle compatibility (GRSP); worldwide light duty vehicle test procedures (GRPE); and intelligent vehicle systems (WP.29). Program of Work of the 1998 Global Agreement Working Party of Experts Subject Sponsoring Contracting Party Chair GRRF Motorcycle Brake Systems Canada Canada. Passenger Vehicle Brakes U.K. and Japan U.K. Tire Performance France U.K. GRE Installation of Lighting and Light-Signaling Devices Canada Canada GRSG Safety Glazing Germany Germany Controls and Displays Canada Canada GRSP Pedestrian Safety European Commission Japan Head Restraints U.S.A. U.S.A. Hydrogen Fuel Cell Vehicle Safety Sub-Group Germany, Japan and U.S.A. TBD GRPE Worldwide Heavy-Duty Certification Procedure European Commission European Commission Worldwide Motorcycle Emission Test Cycle Germany Germany Heavy-Duty On-Board Diagnostics U.S.A. Japan Off-Cycle Emissions U.S.A. U.S.A. Non-Road Mobile Machinery European Commission European Commission Hydrogen Fuel Cell Vehicle Environmental Sub-Group Germany, Japan and U.S.A. European Commission a. Status of Established GTRs Under the 1998 Global Agreement At the November 2004 WP.29 session, the Door Lock and Door Retention Components GTR was adopted as the first GTR under the 1998 Global Agreement. Per the 1998 Agreement, the U.S. is obligated to initiate the process for adopting the provisions of GTR-1. On December 15, 2004, the U.S. issued a notice of proposed rulemaking

(NPRM)closely based on GTR1, which satisfied this obligation (69 FR 75020; Docket No. NHTSA-2004-19840; NPRM). NHTSA has considered the comments submitted and is in the process of concluding the Final Rule. In the Final Rule the U.S. will explain why it agrees or disagrees with the substantive comments it received and describes the changes, if any, it made to the rule in response to the comments with which it agrees. If public comments on the NPRM lead the agency to adopt a final rule that differs in any significant way from the GTR, the U.S. will consider submitting a proposal to make conforming amendments to the GTR. b. Formal Proposals for the Development of GTRs Submitted by Contracting Parties Based on Program of Work As of the publication of the October 8, 2004, **Federal Register** Notice (69 FR 60490), and pursuant to Article 6 of the 1998 Global Agreement, which sets forth the process and conditions under which a contracting party may make proposals for the establishment of GTRs, the following proposals have been made by contracting parties and referred to the proper working party of experts. These proposals and supporting documentations can be found in the docket for this notice. They can also be found on the UN/ECE Website 3 or under the respective working party of expert link. 4 3 *http://www.unece.org/trans/main/wp29/wp29wgs/wp29gen/wp29glob.html* . 4 *http://www.unece.org/trans/main/welcwp29.htm* . • Exhaust emissions from non-road mobile machinery

(NRMM)(Sponsored by the EC), GTR to be prepared by GRPE. (UN/ECE document TRANS/WP.29/AC.3/14) • Head Restraints (Sponsored by U.S.A), GTR to be prepared by GRSP. (UN/ECE document TRANS/WP.29/AC.3/13) • Heavy-duty off-cycle emissions vehicles (Sponsored by U.S.A.), GTR to be prepared by GRPE. (UN/ECE document TRANS/WP.29/AC.3/12) • Passenger vehicle brake systems (Sponsored by Japan and United Kingdom), GTR to be prepared by GRRF. (UN/ECE document TRANS/WP.29/AC.3/10) • Passenger vehicle tires (Sponsored by France), GTR to be prepared by GRRF. (UNECE document listing pending) c. Status of proposed GTRs under the 1998 Global Agreement 1. Motorcycle Brake Systems Work on this GTR began following its sponsorship by Canada at the 52nd session of GRRF, in September 2002. Canada initiated and chaired six meetings of the informal working group. The meetings were open to all interested parties. The attendees for the informal group included representatives from: Canada, USA, Italy, the UK, Japan, India, IMMA (International Motorcycle Manufacturers Association), FEMA (Federation of European Motorcyclists' Associations), AMA (American Motorcyclist Association), and JAMA (Japan Automobile Manufacturers Association, Inc.). Early work to research and compare various performance requirements found in several existing national motorcycle brake regulations was conducted independently by the governments and the motorcycle industry (UNECE Regulation No. 78, the United States Federal Motor Vehicle Safety Standard, FMVSS No. 122 and the Japanese Safety Standard JSS 12-61). The subsequent reports, along with proposed provisions for the GTR, were presented at the 51st, 52nd, and 53rd sessions of GRRF. Despite using different methodologies, the results were found to be very similar between the three reports. Based on this and other research subsequently completed, a preliminary outline of the performance requirements for the GTR was developed The informal working group reviewed and compared the requirements in each national regulation during the development of the GTR. These regulations, in conjunction with the research and analysis, were used to develop a draft table of regulatory requirements. This draft table was continually updated as technical issues were raised, discussed and resolved. The table was presented and discussed at the 57th session of GRRF in February 2005, and discussed further at the 58th session of GRRF in September 2005 in conjunction with a first draft of the proposed GTR (See TRANS/WP.29/GRRF/2005/18 and TRANS/WP.29/GRRF/2005/18/Add.1). 5 5 *http://www.unece.org/trans/main/wp29/wp29wgs/wp29grrf/grrfage.html* . Where national regulations or standards address the same subject, *e.g.* dry stop or heat fade performance requirements, the informal group reviewed comparative data on the relative stringency of the requirements from the research and studies and included the most severe options. In many cases, individual members of the informal group were tasked with completing additional testing to confirm or refine the testing and performance requirements. Certain tests, such as a wet brake test, were discussed on the basis of the original rationales and the appropriateness of the tests to modern conditions and technologies. In each of these steps, specific technical issues were raised, discussed, and resolved. A full discussion of each of these issues and the technical rationale is provided in the latest draft document, which can be accessed on the WP.29 website 6 and in the docket of this Notice. 6 *http://www.unece.org/trans/main/wp29/wp29wgs/wp29grrf/grrfspecial0606.html* . At a special session of GRRF, held June 19, 2006, the draft GTR on motorcycle brake systems was accepted by all the Contracting Parties to the 1998 Agreement that were present and was recommended for adoption by WP.29/AC.3 at the upcoming 140th session scheduled for November 2006. In summary, the GTR would provide several benefits that would ultimately benefit motorcycle users and other stakeholders. In addition to providing clear and objective test procedures and requirements that can be consistently and objectively followed; the the GTR also addresses recently developed technologies, such as combined braking systems

(CBS)and antilock brake systems (ABS). In addition, since the GTR draws from the best of existing national regulations from around the world, the U.S. would benefit from the GTR in various ways. Among these are improvements in testing procedures such as an improved wet brake test that simulates in service conditions by spraying water onto the disc rather than immersing the disc in water; new tests for ABS systems; and a specified burnishing procedure that is more objective. Having worked closely with the other contracting parties on the development of this GTR, NHTSA intends to vote positively for it at the November 2006 session of WP.29. If established as a GTR under the 1998 Agreement, this regulation will be the third adopted under the 1998 Agreement. NHTSA welcomes any comments from the public regarding this GTR and NHTSA's decision to vote positively for its establishment. 2. Installation of Light and Light-Signaling Devices In March 2003, at the 129th Session of WP.29, a formal proposal to develop a GTR on the installation of light and light-signaling devices for vehicles other than motorcycles was adopted. (See TRANS/WP.29/AC.3/4). 7 7 *http://www.unece.org/trans/doc/2003/wp29/TRANS-WP29-AC3-04e.doc* . A draft GTR containing provisions for the installation of 22 vehicle lighting and light-signalling devices was subsequently developed by GRE over the course of nine formal and informal meetings. However, in a number of areas, the informal working group encountered situations where established safety provisions applied by some Contracting Parties differed from other equally well-established provisions applied by others. For those instances, GRE attempted to reach a science and data based solution by considering, among other things, which provisions were more effective or more cost beneficial. GRE could not reach consensus on several requirements because the necessary data do not exist to justify selecting one or the other. In November 2005, the chairman of the informal working group turned to the Executive Committee for the 1998 Global Agreement (AC.3) for a solution forward. AC.3 instructed GRE to remove from the draft GTR all portions that specified the colour or presence of the various lighting devices covered by the regulation, leaving those choices to each Contracting Party to make, as the GTR is adopted into their various national jurisdictions. However, at the subsequent informal meeting in April 2006, the informal working group agreed that the presence of lighting devices is essential for the GTR and decided to give it a final attempt to work on a solution. Since then, several comments have been received from various stakeholders, including the auto industry, and are currently being considered. 3. Safety Glazing At the 132nd session of WP.29 in March 2004 the formal proposal to develop a GTR on safety glazing was adopted (TRANS/WP.29/AC.3/9), with a modification to restrict the scope of the GTR to glass safety glazing. An informal working group was established under the Chairmanship of Germany, the sponsor of the GTR. At the 137th session of WP.29 in November 2005, AC.3 further agreed that the GTR would not include installation provisions and that the informal working group could consider possible approaches to including markings in the GTR. After six meetings of the informal group, a draft GTR was submitted to GRSG for the April 2005 session (TRANS/WP.29/GRSG/2005/9). 8 The first report was submitted to WP.29 for its 136th session in June 2005 (TRANS/WP.29/2005/49). 9 Based on comments from the United States and Canada concerning the format of the draft, the proposal was returned to the informal group for further consideration. Since the April 2005 GRSG session, the informal group has met four times. 8 *http://www.unece.org/trans/main/wp29/wp29wgs/wp29grsg/grsgage.html* . 9 *http://www.unece.org/trans/main/wp29/wp29wgs/wp29gen/wp29age.html* . The draft GTR specifies performance requirements for various types of glazing ( *i.e.* , laminated glass) intended for installation in Category 1 and 2 vehicles as defined in Special Resolution No. 1. 10 The GTR includes requirements that apply to glazing as an item of equipment, and does not include requirements for vehicles. Performance requirements have some differences depending on whether a material is for a windscreen or, as an example, door glass. 10 A detailed explanation of Special Resolution No. 1 is set forth in Section III. D., below. The draft GTR is based in large part upon ECE Regulation 43. One significant difference between the draft GTR and the ECE regulation is that the minimum light transmittance level for glazing requisite for the driver's forward field of vision is 70%, as currently specified in the U.S. standard rather than 75%, as currently specified in the ECE standard. However, the test procedure is based on the ECE test procedure, which specifies testing in defined zones based on the eye position of the driver and with the glazing at the intended installation angle. This test procedure is considered more realistic than the current U.S. procedure that tests the glazing at a normal angle to the surface. Another difference is the drop height for the small (227 g) ball test for uniformly toughened glass panes. The ECE regulation had specified different drop heights depending on the thickness of the glazing. Based upon some test results provided by Japan which determine that the force from a drop height of 2.0 m replicated the force of a typical object that impacts a pane, it was decided that a single drop height of 2.0 m could be specified. The informal working group will be meeting again prior to the October 2006 session of GRSG. A new draft of the GTR may be provided to GRSG at that session however, the draft GTR will not be formally submitted to GRSG before the April 2007 session. Therefore, the earliest it could be considered for adoption by WP.29/AC.3 is at the November 2007 session. 4. Pedestrian Safety WP.29 decided to begin work on pedestrian safety in May 2002, by establishing an informal working group under the GRSP. The formal proposal to develop a GTR (TRANS/WP.29/AC.3/7) 11 was submitted and adopted by the AC.3 at its tenth session, in March 2004. The terms of reference of the group can be found on the UNECE website (See INF GR/PS/2). 12 11 *http://www.unece.org/trans/main/wp29/wp29wgs/wp29gen/wp29glob_proposal.html.* 12 *http://www.unece.org/trans/main/wp29/wp29wgs/wp29grsp/pedestrian_1.html* . The European Commission

(EC)is the sponsor of the GTR. The group has held ten meetings, which were attended by representatives of: The Netherlands, France, Germany, Canada, EC, Spain, Japan, USA, Korea, Italy, Turkey, the European Enhanced Vehicle-Safety Committee (EEVC), Consumers International (CI), the European Association of Automotive Suppliers (CLEPA) and the International Organization of Motor Vehicle Manufacturers (OICA). The meetings were chaired by Japan. This GTR would improve pedestrian safety by requiring vehicle hoods and bumpers to absorb energy more efficiently when impacted in a 40 kilometer per hour (km/h) vehicle-to-pedestrian impact, which accounts for more than 75 percent of the pedestrian injured accidents (AIS 1+) reported by International Harmonized Research Activities (IHRA)/Pedestrian Safety working group (IHRA/PS). It consists of two sets of performance criteria applying to:

(a)The hood top and fenders; and

(b)the front bumper. Test procedures have been developed for each region using sub-system impacts for adult and child head protection and adult leg protection. The head impact requirements will ensure that hood tops and fenders will provide head protection when struck by a pedestrian. The hood top and fenders would be impacted with a child headform and an adult headform at 35 km/h. The Head Injury Criterion

(HIC)must not exceed 1,000 over one half of a child headform test area and must not exceed 1,000 over two third of a combined child and adult headform test areas. The HIC for the remaining areas must not exceed 1,700 for both headforms. The leg protection requirements for the front bumper would require bumpers to subject pedestrians to lower impact forces. This GTR specifies that the vehicle bumper is struck at 40 km/h with a legform that simulates the impact response of an adult's leg. Vehicles with a lower bumper height of less than 425 millimeter

(mm)are tested with a lower legform, while vehicles with a lower bumper height of more than 500 mm are tested with an upper legform test device. Vehicles with a lower bumper height between 425 mm and 500 mm are tested with either legform chosen by the manufacturer. In the lower legform to bumper test, vehicles must meet limits on lateral knee bending angle, knee shearing displacement, and lateral tibia acceleration. In the upper legform to bumper test, limits are placed on the instantaneous sum of the impact forces with respect to time and the bending moment on the test. At the May 2006 GRSP meeting, the working group presented a draft version of the Pedestrian GTR for review by all GRSP experts. 13 Due to unresolved issues with the applicability of the regulation and differences between it and the European Directive on Pedestrian Safety, the GRSP recommended the GTR remain under the working group pending review at the December 2006 GRSP session. NHTSA is currently performing testing and analyses to aid in the resolution of determining the vehicle applicability of the GTR, including preliminary cost/benefit analyses. NHTSA expects to complete these analyses by the December 2006 GRSP session. 13 ( *http://www.unece.org/trans/doc/2006/wp29grsp/ECE-TRANS-WP29-GRSP-2006-02e.doc* ). 5. Head Restraints During the November 2004 meeting of WP.29 and the Executive Committee of the 1998 Global Agreement, NHTSA formalized its sponsorship of the regulation on Head Restraints as identified in the Program of Work of the 1998 Global Agreement. In the October 8, 2004, (69 FR 60460) notice, NHTSA sought comments on a proposal that formalizes the U.S. sponsorship of a GTR on head restraints. In response to the agency's request for comment on the proposal, NHTSA received no comments. The proposal was formally presented by the U.S. and adopted by the Executive Committee and referred to the Working Party of Experts

(GRSP)at the March 2005 Session of WP.29. In February 2005, the GRSP formed an informal working group, chaired by the US, to develop a GTR. The working group has met seven times with the following contracting parties and representatives participating: Netherlands, France, Canada, Japan, Germany, Spain, Korea, the UK, USA, the EC, CLEPA and OICA. In developing and drafting the new GTR, the working group is combining elements from UNECE Regulations Nos. 17, 25, and newly upgraded United States Federal Motor Vehicle Safety Standard (FMVSS) 202, as well as considering proposals for requirements not contained in the previously mentioned regulations. The working group is making good progress on exchanging data and has started drafting the regulatory text. The major outstanding issues are: • *Applicability:* Applying the GTR to vehicles up to 4,500 kg or limiting it to 3,500 kg. • *Backset:* There is general consensus that it should be regulated, but the maximum backset limit is still being discussed. • *Measuring procedures for height and backset:* There is continued discussion on using the H-point or R-point as the point of reference. • *Dynamic Test:* There is consensus to incorporate the U.S. dynamic test established in the 202 Final Rule, but there remains discussion on the injury criteria and dummy. The working group has submitted two Progress Reports on the status of this GTR. They can be found in the docket for this notice. 6. Other GTRs The GRRF began work to develop a GTR for light vehicle tires in September 2006, which was scheduled following approval by WP.29/AC.3 at the June 2006 session. For this GTR, WP.29/AC.3 provided a working framework by outlining each of its major elements prior to the beginning of technical development. This approach was taken by WP.29/AC.3 because of lessons learned from past GTRs, where much of the technical development was encumbered by policy considerations being undertaken by technical experts at the working group level. By settling many of the policy decisions early, it is expected that the technical development will progress smoothly and in the least amount of time possible. France is the technical sponsor and the UK will be chairing the informal working group meetings. The GTR on passenger vehicle brakes was placed on hold until common issues identified with the motorcycle GTR are resolved. The decision to focus on resolving the issues under the motorcycle GTR before proceeding with substantially similar issues in the passenger car GTR was made by AC.3 at its November 2005 session. The GRSG has developed many of the criteria for the location, illumination and position of the controls and displays for motor vehicles. Issues regarding the use of certain symbols remain unresolved. Comments received in response to a NHTSA NPRM has led the group to reflect on its previous work and to further investigate some of the symbols originally proposed by this group and their ability to be recognized. The Alliance of Automobile Manufacturers has agreed to conduct a study to evaluate the symbols and determine which symbols have appropriate levels of recognition with the U.S. public as a basis for further development of the table in the GTR. Phase 1 of the study has been completed and a presentation was given to WP.29 in November 2005. Based on this phase, it was agreed to postpone further work on the GTR until a second phase of testing some symbols could be conducted. The second phase has recently been completed and preliminary information was shared at the June 2006 session of WP.29. However, review of this phase may not be completed in time for discussion at GRSG in October 2006, in which case it would be discussed in April 2007. At its 136th Session, WP.29/AC agreed to a proposal from Germany, Japan and United States regarding how best to manage the development process of a GTR for hydrogen fuel cell vehicles. Under the agreed process, once AC.3 develops and approves a plan for the development of the GTR, two subgroups will be formed to address its safety and environment aspects. The safety subgroup will report to GRSP and the environmental subgroup to GRPE. Each subgroup will have a chair. In order to ensure communication between the subgroups and continuous engagement with WP.29 and AC.3, a project manager will be assigned to coordinate and manage the various aspects of the work ensuring that the agreed plan is implemented properly and that milestones and timelines are set and met. The co-sponsors are in the process of developing an action plan outlining the areas that the subgroup on safety and the environment should be considering in developing the GTR. d. Special Resolutions Under the 1998 Global Agreement At the one-hundred-and-twentieth session of WP.29, the Government of Japan, through document TRANS/WP.29/2000/39, presented a proposal concerning the necessity of establishing common definitions to facilitate the formulation of future global technical regulations (gtrs), selecting vehicle category, vehicle weight, and vehicle dimension as candidate items requiring a common definition. The necessity of common definitions was unanimously recognized at the WP.29 session and, in October 2000, an informal group was formed under the Working Party on General Safety Provisions

(GRSG)and Japan volunteered to chair the effort. As originally drafted, this proposal was expected to be a GTR. However, it was noted that the document did not contain performance requirements as required by Article 4 of the 1998 Agreement, and as such did not meet the criteria for a GTR. Using its authority under Article 3 of the 1998 Agreement to “fulfil such other functions as may be appropriate,” the Executive Committee decided that this proposal would become Special Resolution No. 1 (S.R. 1). Because S.R. 1 does not contain performance requirements, it also does not trigger the obligations of Article 7 of the 1998 Agreement requiring Contracting Parties to initiate procedures to adopt GTRs. While GTRs must be drafted in accordance with S.R. 1, Contracting Parties are not required to use this document when drafting regulations in their own country. S.R. 1 applies to all wheeled vehicles, equipment and parts falling within the scope of the Agreement Concerning the Establishing of Global Technical Regulation for Wheeled Vehicles, Equipment and Parts, which can be fitted and/or be used on Wheeled Vehicles. Generally, vehicles are categorized as either passenger vehicles (Category 1 vehicles), commercial vehicles (Category 2 vehicles), or 2- or 3-wheeled vehicles (Category 3 vehicles). S.R. 1 also includes definitions of masses and dimensions. S.R. 1 was adopted at the June 2005 session of WP.29 and can be found at TRANS/WP.29/1045. e. Compendium of Candidate GTRs Article 5 of the 1998 Agreement provides for the creation of a compendium of candidate technical regulations of the Contracting Parties. NHTSA has submitted a request for six Federal Motor Vehicle Safety Standards (FMVSS) to be included in this Compendium. These FMVSS have all been listed in the Compendium after an affirmative vote of the Executive Committee. The FMVSS listed in the Compendium are: • FMVSS 108—Lamps, Reflective Devices, and Associated Equipment • FMVSS 135—Light Vehicle Brake Systems • FMVSS 139—New Pneumatic Radial Tires for Light Vehicles • FMVSS 202—Head Restraints • FMVSS 205—Glazing Materials • FMVSS 213—Child Restraint Systems To facilitate the review and consideration of these FMVSS by other Contracting Parties, NHTSA is arranging translations of these documents. To date, all of the FMVSS in the Compendium are available in Chinese and French. All except FMVSS 202 are available in Arabic, Russian and Spanish. If you would like a translation, please contact Mr. Wondimneh as noted in the FOR FURTHER INFORMATION CONTACT section. IV. Request for Comments The agency invites public comments on the formal proposals for the development of GTRs submitted by contracting parties and the work to develop each of the GTRs already ongoing. In particular, the agency seeks comments on the motorcycle brake systems GTR, which is scheduled to be established as a GTR under the 1998 Agreement by a consensus vote at the November 2006 session of WP.29. V. Privacy Act Please note that anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78), or you may visit *http://dms.dot.gov.* Issued on October 3, 2006. Stephen R. Kratzke, Associate Administrator for Rulemaking. [FR Doc. E6-16681 Filed 10-6-06; 8:45 am] BILLING CODE 4910-59-P DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency Agency Information Collection Activities: Submission to OMB for Review; Comment Request AGENCY: Office of the Comptroller of the Currency, Treasury. ACTION: Notice and request for comment. SUMMARY: The OCC, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on a continuing information collection, as required by the Paperwork Reduction Act of 1995. An agency may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid OMB control number. The OCC is soliciting comment concerning its information collection titled, “(MA) Securities Exchange Act Disclosure Rules (12 CFR Part 11).” The OCC also gives notice that it has submitted the collection of information to OMB for review. DATES: Comments must be received by November 9, 2006. ADDRESSES: Communications Division, Office of the Comptroller of the Currency, Public Information Room, Mailstop 1-5, Attention: 1557-0106, 250 E Street, SW., Washington, DC 20219. In addition, comments may be sent by fax to

(202)874-4448, or by electronic mail to *regs.comments@occ.treas.gov* . You can inspect and photocopy the comments at the OCC's Public Information Room, 250 E Street, SW., Washington, DC 20219. You can make an appointment to inspect the comments by calling

(202)874-5043. Additionally, you should send a copy of your comments to OCC Desk Officer, 1557-0106, by mail to U.S. Office of Management and Budget, 725, 17th Street, NW., #10235, Washington, DC 20503, or by fax to

(202)395-6974. FOR FURTHER INFORMATION CONTACT: You can request additional information or a copy of the collection from Mary Gottlieb, OCC Clearance Officer, or Camille Dickerson,

(202)874-5090, Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219. SUPPLEMENTARY INFORMATION: The OCC is proposing to extend OMB approval of the following information collection: *Title:*

(MA)Securities Exchange Act Disclosure Rules (12 CFR Part 11). *OMB Number:* 1557-0106. *Description:* This submission covers an existing regulation and involves no change to the regulation or to the information collection requirements. The OCC requests only that OMB approve its revised estimates. The Securities and Exchange Commission

(SEC)is required by statute to collect, through regulation, from any firm that is required to register its stock with the SEC certain information and documents. 12 U.S.C. 78m(a)(1). The OCC is required by statute to apply similar regulations to any national bank similarly required to be registered (those with a class of equity securities held by 500 or more shareholders). 15 U.S.C. 781(i). Part 11 ensures that “publicly owned national banks” provide adequate information about their operation to current and potential shareholders, depositors, and to the public. The OCC reviews the information to ensure that it complies with Federal law and makes public all information required to be filed under these rules. *Type of Review:* Extension of a currently approved collection. *Affected Public:* Individuals; Businesses or other for-profit. *Estimated Number of Respondents:* 58. *Estimated Total Annual Responses:* 354. *Frequency of Response:* On occasion. *Estimated Total Annual Burden:* 2,205.5 Comments continue to be invited on:

(a)Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information has practical utility;

(b)The accuracy of the agency's estimate of the burden of the collection of information;

(c)Ways to enhance the quality, utility, and clarity of the information to be collected;

(d)Ways to minimize the burden of the collection on respondents, including through the use of automated collection techniques or other forms of information technology; and

(e)Estimates of capital or startup costs and costs of operation, maintenance, and purchase of services to provide information. Dated: October 4, 2006. Stuart Feldstein, Assistant Director, Legislative and Regulatory Activities Division. [FR Doc. 06-8571 Filed 10-6-06; 8:45 am]

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